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Remove data.
Check box that says "tell me when a website asks to store data".
Go to hotmail.
When prompted, deny request to store data.
Site is now added to Exceptions list.
Leave box checked now and forever since very few websites will attempt this, but when they do you can click deny to stop them. You only have to deny once, it remembers the setting.
Note that sites can still store cookies in Flash if you have Flash enabled. The obvious solution is to disable Flash, but if not, there are add-ons that will clear Flash cookies when you quit Firefox.