It seems that I might have found an answer to one of my problems.
Xbox Live forums post.
Any Xbox Live 1 account which is cancelled will "expire" in 60 days to be unrecoverable, even if you have the right recovery information or not.
I don't have 100% confirmation from Microsoft at this point however I have of course made that phone call to them, no luck in retreiving the account using the right information.
I was considering purchasing an Xbox 1 just to see if perhaps my old account can only be recovered on an Xbox 1 but I'm hesitant to blow 100$ on a gamble.
I am still having trouble getting a response from Trevin Chow, I was hesitant to bring up his name too much as I don't want people hassled over this too much, however it seems impossible to contact the guy for information (if he's even the right guy!) so screw it - that's his name, blog here and here he appears to be a lead programmer for the Windows Live team, I was hoping he might have some info for me.
To summarise, I now have not 1 or 2 but 3 gripes with Windows Live / Xbox Live etc.
- Linking accounts from Xbox Live accounts to Windows Live / Passport.net accounts - is fixed, you can't change the linked account
- Old Xbox Live accounts Expire after 60 days, never to be recovered even by the original owner
- Passport.net accounts based off of hotmail.com address's can't have the primary mail address changed.
The locking out of the old Xbox accounts is just silly! I mean in the case of hotmail, if you let your hotmail.com email address "expire" they delete it, they refuse to accept more email but you can always re-open it, it lays there dormant for you.
The way it's configured for Xbox Live there will be a heap of dormant accounts for no reason, seems badly designed to me.
Oh, I did get a response from MajorNelson, albeit a small one but he did advise he'd relay my query about expiring accounts to the billing team, jolly good show indeed.