Ok, Ill try summarize what I believe is happening and what can be done.
Hotmail has blocked the server or address you use for sending mail (most likely due to spam)
The best thing to do is to remove the reason which caused hotmail to block, convince hotmail the root cause is removed and they remove the block. (this is difficult and will take a lot of time).
Try to circumvent the hotmail block, use a different address or different server (must be done by dreamhost).
Try to live with a hotmail who suddenly decides to block. Tell your users they cant subscribe using hotmail since hotmail blocks you.
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