Contrary to other reports and Microsoft's own alarming warning message, Windows Phone 7 users won't have to restore their handsets to factory settings if they switch their Hotmail email accounts to Outlook.com - as long as they opt to make their new address an alias instead of renaming their Hotmail account altogether.
Opting for the alias option means you can continue to use your handset as normal, even after signing up for the new email address. You just won't be able to send and receive emails from the new account domain.
The scare originated from a Microsoft warning that pops up when Windows Phone 7 users opt to sign over their email accounts from Hotmail to Outlook.com. It states: "Warning: You might not want to change this email address if you've used it to set up a Windows Phone. On your phone, features that use this address will stop working, including Marketplace, Xbox Live, SkyDrive, email and others. To use these features again on your phone, you'd need to restore it to factory settings, which erases all personal content."
Opting to rename your account rather than creating an alias will cause Windows Phone 7 users to void their Hotmail email and force a reset. However, by choosing the alias option instead, the phone's details are unaffected. You can chose between the two by going to the settings panel within Outlook.com.
Pocket-lint tried this with our own Nokia Lumia 800 and we can safely say that - although we switched our account to use the Outlook.com alias using the page sent to us by email from the Microsoft team - we can happily use the Hotmail account on the phone. And emails sent and received still appear in our Outlook inbox online (through the browser).
Incidentally, emails we now send via a PC do have the Outlook.com address. We are also still signed in to Xbox Live, etc.
Windows Phone 8 phones, of course, will be able to be set up using your Outlook.com address if you then choose to upgrade as they'll have fresh firmware to begin with.
Were you panicked by the Microsoft message? Let us know in the comments below...