First Follow the steps here. I found that no matter how hard I tried to fix “Sending” emailing using my hotmail account did not solve the issue. I tried a wacky step and it solved my problem:
In Thunderbird goto:
Edit->Account Settings->Outgoing Server (SMTP)
and select your hotmail server (smtp.live.com) and click edit
Now just UNCHECK the “Use name and password”, then RECHECK that checkbox and click OK.
Now if you try to send an email (MAKE SURE the FROM: dropdown is your hotmail account too) thunderbird should RE-ASK you for your hotmail password (And you can save it to the cache) and voila, the problem is fixed.
I did this in Ubuntu 9.04 (Jaunty)