Microsoft has limited Hotmail passwords to no more than 16 characters. Hotmail will accept the first 16 characters of an existing, longer password. Microsoft officials say that there has been a 16-character limit for Hotmail accounts for some time. Security researchers who looked at the requirement found it odd, to say the requirement odd. One possibility is that Microsoft has been truncating longer passwords to 16 characters all along and then hashing those first 16. Microsoft: We will always prioritize the protection needs of users accounts
Source: https://threatpost.com/hotmail-limits-passwords-16-characters-092112/77038/