When you're not "money driven", you're either a retarded or "honor driven".
And since Google and M$ are both companies, I'll stick with the first assumption: "money driven". Now, making GMail and Hotmail "free" is not quite like that. They provide a services using their main company name for it.
If you provide a "lousy" service in the light of your competition at the same price, you're doing it wrong. Since GMail is an awsome service Hotmail can be no less, obviously.
Now... They DO make money from us giving that free service and they ought to improve it too keep it that way. By either feedback/reports or in-house pure R&D.
So, bottom line is: free of charge, doesn't mean they can be lazy about implementing new things. At least on the email service IMO.
Cheers!