Next, you right-click on this persons name in your list and highlight "Delete contact":
You click "Delete contact" and make sure that the "Also block this contact" and "Also remove from my Windows Live Hotmail contacts" boxes are firmly checked.
Next you click the "Delete contact" button thus removing this person from your contact list. Now you simply admire your greatly improved contact list:
Note: It is most unfortunate that someone actually signed out while I was taking the screen shots, but I think my point is pretty clear.