Add a signature to Hotmail email messages
HotmailUniversity
When you first create a Hotmail account, most of your settings are set to their default; one of these settings is the ability to automatically add a signature to every email message you send from your Hotmail account, using a web browser (when you send emails from an email program that uses your Hotmail account, the signature needs to be enabled and created inside that program itself). In this tutorial, we will show you how to create a Hotmail signature, and how to delete it once you no longer need it.
In this tutorial: Create a signature | Add an image | Change signature | Disable/hide your email signature
Create your email signature
Once you are signed in, and inside your inbox, click on the "Options" button near the top right corner of the page, and pick "More options" from the dropdown menu.
On the next screen, click on "Personal email signature" under "Writing email"; you'll now see a "Enter text below to be added to the bottom of each email message you send" message, and the Hotmail signature editor displayed below it: (a text box and toolbar).
Click under the toolbar, and start typing your email signature; hit Enter to add a new line, and feel free to play around with the standard text formatting options: font family and font size, bold, italic, underline, text alignment, bullets, indents, etc.
- Click on this button to insert a horizontal line separator in your signature:
- Click on this button to change the text color of the current selection:
note that you can have multiple, different colors inside the same email signature. 
Click on this button to change the background color of selected text in your signature: (highlight color won't affect the background of the message itself).
To add a link to your email signature: either paste directly a website address like "http://HotmailUniversity.com/" (will become a clickable URL), or select the text you want linked, click the Hyperlink button, and type the web page address.
Hotmail Signature Image
As shown on the earlier screenshot, Windows Live Hotmail also allows you to add pictures in your email signature; pictures you want to add to the signature block need to be online, since Hotmail will display a linked image in your signature (as opposed to an attached file). You do not need your own website or server to publish images online - learn how to upload pictures with SkyDrive (free service for all Hotmail users).
To use a picture you found online: make sure you are allowed to use the picture; then, right-click on it, and choose "Copy". Go back to the signature editor, right-click on the, and choose "Paste": Hotmail will add the image at the insertion point!
To use an image from your SkyDrive account: go to "Windows Live > SkyDrive", and navigate through your files; click on the image you want to use until all you see on the screen is the picture itself. Now right-click on the picture, choose "Copy"; go back to your Hotmail signature, and right-click to "Paste" the image where you want it.
Tip: images take much longer to download than regular text; add as few pictures to your signature as possible, and pick small ones (manually resizing them doesn't decrease their size, only their visible dimensions). Also: unless you have been added as contact by your recipients, images will be automatically hidden for their protection (they may not be able to see the image, and your message might be wrongfully perceived or filtered out as spam).
Can a Hotmail signature contain a virus?
The short answer is "no", Hotmail signatures cannot contain a virus themselves: however, someone could craft a signature which includes an image that, when shown, would let the sender know that his/her email message was opened - this is why, by default, Hotmail will hide images in emails you receive from unknown senders.
Unless you need to view them (trusted senders only), keep images hidden for your security: though rare, some viruses can be transmitted through pictures (learn more).
Signature Settings: difference between "Rich text", "Plain text", and "Edit in HTML"
There is only one signature setting you can customize: it determines whether Hotmail will allow text formatting options in your signature or use just regular text. On the right side of the toolbar, click on the "Mode" dropdown menu: "Rich text" (default) means that you can format your signature; "Edit in HTML" allows you to add your own code (like linking to a signature generator image to rotate).
If you choose "Plain text", Hotmail won't allow any signature formatting: if you switch to plain text, you will receive a warning message: "You're about to change your message into plain text. All formatting that you've already done will be lost." Click "Cancel" to keep your current email signature; if you click "OK", Hotmail will remove anything but the text content of your signature block (it will also preserve the new line symbols).
Change signature after the fact
Follow the same procedure to change your email signature: click on "Options > More options", select "Personal email signature", and make the changes directly in the text box. Then, click on "Save" at the bottom of that page. That's it! The next email you send from your Hotmail account will automatically use the new/updated signature.
Disable (hide) your Hotmail signature
Windows Live Hotmail used to include an option to turn On or Off your email signature; unfortunately, this very useful feature has been removed from the latest version of Microsoft's webmail service. So, for now, and until Hotmail hopefully adds this setting back, you need to delete the text from the signature creator / editor and click "Save" to disable email signature. See how to save and backup your signature + restore it.