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- Sign out and exit MSN 2011
- Head to Control Panel >> Programs >> Programs and Features >> Choose Windows Live Essentials 2011 and click on Uninstall/Change, Finally in the popup window, choose Repair All Windows Live Programs.
- Go to C:\Users\WINUSERNAME\AppData\Local\Microsoft . Delete the Windows Live Contacts folder
- Go to C:\Users\WINUSERNAME\ delete the Contacts folder
- If after signing in the problem persists go to C:\Users\WINUSERNAME\AppData\Local\Microsoft\Messenger . Backup the entire folder yourmsnuser@hotmail.com and then proceed to delete it. If you have emoticons and display pictures you will then be able to restore them from the backup.
Source : http://msnmessengertips.com/contacts-appear-offline-windows-live-messenger-2011/