Default Mail Client Problems

I am trying to make Hotmail the default mail client. I have changed the setting in the internet options menus. When I click on a mailto: link, it starts bringing up the hotmail page, then a login popup asks for my passpord login and password. If I enter just the username and password nothing happens...it just sits there. If I enter the username as username@msn.com, then I get this error:

Fatal Login Error. hr = 80041035, f = -2147217355

Any ideas what is wrong? I am unable to find any info from searches online.

Thanks!

Matthew