You can use the following Trick:

Important: When trying to increase your limit,you may be loosing all emails stored in your hotmail inbox, so please follow the instructions below prior to go into the increasing procedure.

All your emails in the mail box may be deleted as the new account settings will REFRESH your inbox. Please backup your emails before proceding.
One method for backing up is, first of all make an extra folder in your mail box, and move your emails from your inbox to that newly created folder.
However there is no need to backup your addressbook or msn messenger contacts, they will remain unchanged.

GOOD LUCK.

To increase Hotmail Account Limit to 250mb
Follow these steps..!!

Login ur hotmail account and go to options.
Go to "Personal"
Click "My Profile"
Change Country to "United States"
Wait for browser to load United states settings.
Change the state to "Florida" and zip code "33332"
Click "update"
Click "Continue"
Go to "Language" and make sure its "English"
Paste the following link in the same browser and hit go.

http://by17fd.bay17.hotmail.msn.com/...n/Accountclose

Wait until the Screen says you're Hotmail is Closed and scheduled to be deleted.
Click "Close Account".
Go back to login page and relogin to ur hotmail account..!!

Your account size will now increase to 25 MB which a month later becomes 250 mb.
Good Luck..!!

PS.It worked, however i guess the Florida thing is simply a diversion because new hotmail accounts are given 250 by default now. So the trick is to actually "de-activate and re-activate the account" only !

Dont worry i have tried it and it worked before sending to you.