The Windows Live Messenger cache folder is where your contacts and chat history are stored. Typically, there is no reason to delete this folder, as doing so may destroy all the contact information you have in stored in the program. Sometimes, however, deleting the cache folder is necessary, especially if you have just upgraded to Windows Live Messenger and the contacts list has not updated correctly from your older version of Windows Messenger. Fortunately, it is not a complicated task to perform.
Close all Windows Live Messenger windows.
Open either My Computer or Windows Explorer and navigate to the following folder:
"C:\Documents and Settings(Your Windows logon name)\Local Settings\Application Data\Microsoft\Windows Live Contacts(Your Messenger e-mail address)."
Select the "Real" folder and the "Shadow" folder.
Delete both of these folders. This will completely remove your Windows Live Messenger cache folder.