Microsoft saves everything you do and will share it to protect you
From Computerworld – a leaked document on what they know about you:
The report describes what information is available from Microsoft Online services for police and ingelligence services, including:
E-mail Services
Authentication Service: Windows Live ID
Instant Messaging: Windows Live Messenger
Social Networking Services: Windows Live Spaces & MSN Groups
Custom Domains: Windows Live Admin Center & Office Live Small Business
Online File Storage: Office Live Workspace & Windows Live SkyDrive
Gaming: Xbox Live