Is it that hard?
Windows Live = Search + Services (Live Search, Mail, etc.)
MSN = Content (News, sports, entertainment, etc.)
That's really all there is. Why does it have to be so complicated? Windows Live is basically Microsoft's version of Google. Don't want to be so clean cut, but that's really how it is. I like Windows Live, but people really have to stop questioning 'what is Windows Live?'.
It's just search + services. Although Ballmer or somebody said it was services + software.
But in my definition, it really fits more of the line of search + services. Lots of search choices, and lots of services. MSN is a site to find content to look at. That's all guys.
Read my old blog post about it: http://msftandthefuture.spaces.live.com/blog/cns!1CA34B674D84900!190.entry