Believe it or not, you have to change your profile picture in Windows Live Messenger in order for it to show up on Windows Live Mail. Here's how:
1. Open and sign in Windows Live Messenger
2. Click "Tools"
3. Click "Change Display Picture"
4. Click "Browse" and find the picture you want to represent yourself.
5. Click "OK"
Now, if you will look at Windows Live Mail, you will see the new picture there.