I think this is totally fine. Live Messenger is a private service, and Microsoft can run it however they want. Users will simply switch to competing services

I think this is totally fine. Live Messenger is a private service, and Microsoft can run it however they want. Users will simply switch to competing services that don't suck. Let the market decide. Also, as behavior like this increases in frequency, we'll finally be forced to address the current usability issues with point-to-point cryptography and adopt it more broadly. Microsoft shouldn't be able to read anything you write unless you choose to share it with them. A world where all communication is encrypted requires more software development effort, but ends up better for everyone in the long run. Calls, emails, text messages - none of them should be intelligible to anyone other than the parties explicitly involved.