It says this in the terms of use:
In particular, we may access or disclose information about you, including the content of your communications, in order to: (a) comply with the law or respond to lawful requests or legal process; (B) protect the rights or property of Microsoft or our customers, including the enforcement of our agreements or policies governing your use of the service; or © act on a good faith belief that such access or disclosure is necessary to protect the personal safety of Microsoft employees, customers or the public.
They say this because although they don't spy on your communications, such organizations such as the CRIA and other anti-piracy organizations do look at your communications and logs. If they find anything, they tell MSN, it gives them all your personal info, and you're hauled off to jail. It's a tricky matter. They don't say that anti-piracy organizations are spying on you, but they also don't deny it. The fact of the matter is, they ARE spying on you. They are not allowed to view the content of your communications because they must comply with microsoft privacy statements, but they are allowed to view urls and download links. The only proof I have of this is how many people are getting caught sharing music and crap off of msn. I mean, if they're not spying on us, how did those people get caught?