I've faffed around but can't seem to figure this one out.

How do you block someone that you have as a contact in Hotmail.com?

I've figured out how to edit a contact and potentially delete a contact, but how do you block someone?

Through the Junk Mail settings.

> Options > Junk e-mail > Safe and Blocked Senders

Ahhhh found it! Cheers!

Once you've blocked someone, will they get messages once they email you to tell them that you have blocked them or will it bounce back to them?

Could be wrong, but I don't think they get any notification, the email just doesn't end up in your Inbox.

I think the sender have a notification ( it depends of the provider ), obviously not like this : "you are blocked ", but a notification of undelivered email is send it.

No, the email will still be delivered successfully, except Hotmail will automatically move it to your Junk Email folder when it arrives.

Sorry mate, i've just made a test ... the email is not in my Junk box ( and i'm not deleting automatically). This is sending with gmail.

I don't know sending an email with another hotmail account but with my corporative email i had this message: Delivery to the following recipient failed:
taguirresi@hotmail.com.