The recovery system is working fine, and the emails are being sent out - it's your e-mail address that's failing. It could be something about the default spam preferences, or just hotmail itself. Either way, I don't think there's much we can do about it, but I'll look into it.
jecheat: You're welcome to continue using your current account as long as no former ones are banned. If you absolutely need your old account (due to reputation, post count, etc), then you'll have to contact an admin to have it reset manually.