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How do change my Windows Live Hotmail password

First login to your Windows Live Hotmail account, and then click the Options link in the upper right:
Windows Live Hotmail options link
And then at the bottom of the resulting list, click on More options...:
Windows Live Hotmail More Options link
On the resulting page, click on View and edit your personal information:
Windows Live Hotmail more options highlighting View and edit your personal information link
At this point you may be prompted to re-enter your password. This is a security measure to prevent just anyone from walking up to your computer and changing your information.
There's something interesting to note about the screen that you land on:
Windows Live Account setting page header
"When you change your password for Windows Live Hotmail, you're also changing it for all your Windows Live based services."
Note that it stopped talking about Hotmail. This is your Windows Live account.
Why does that matter?
Because your Windows Live account is used for all Windows Live services including Hotmail, Messenger Spaces and more. When you change your password for Windows Live Hotmail, you're also changing it for all your Windows Live based services.
Near the center of that page you'll see a section labeled Password reset information:
Password reset information in the Windows Live account setting page
Click on Change on the Password: line and you'll get this box:
Windows Live Change Password dialog

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