Legally, Microsoft appears to be protected by its privacy policies. The policy for Outlook.com, formerly Hotmail, states that, "We may access information about you, including the content of your communications...to protect the rights or property of Microsoft."
This is the agreement that every user agreed to when they signed up for Hotmail or Outlook. It's not carte blanche for Microsoft to go through your email, but it seems to allow them to do it for a very particular purpose.