Turned off last month due to a security issue with Internet Explorer and Active X, the Photo feature for Windows Live Hotmail has now been fixed and made available again. The Windows Live Team announces:
Instead of adding pictures as attachments to your Hotmail messages by clicking Attach and then File and then selecting the pictures you would like to include, Hotmail brings you a tool so you can more efficiently select and add multiple photos to a Hotmail message in Internet Explorer in a couple clicks: select Attach and then Photo.
Try it yourself: just go to http://mail.live.com/, sign in with your Windows Live ID, start composing a new e-mail message, and click Attach, Photo.
Note: this is an Internet Explorer-only feature.