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I'd also like to suggest taking a look at the Reg Fix outlined in this Microsoft forum post by Jonathan Kay. Sounds like a problem similar to yours and he gives a link to download a fix. Probably can't hurt since Jonathan Kay is widely regarded as the Grand Poobah of all WLM gurus.
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I forgot to tell you that I had already tried that before i posted my thread in this forum, but it seems to me that this utility that was developed by Jonathan Kay, is only works on XP, not win2003
Windows Live Messenger login problem solver - Windows BBS