I have seen this problem in some forum posts so its nice to have a fix for it.
The update includes hotfixes two known issues.
Version 1.0.1423.65 of the Sign-In application was released on January 24. Customers that downloaded version 1.0.1423.65 between January 24 and today may experience the following issues:
· Machines running Windows XP may experience problems connecting to Microsoft Online Services, which may manifest with the following error message displayed in the Sign-In application:
“Unable to connect to Microsoft Online Services. You must be connected to the Internet to use the services.”
· Machines running Office Outlook in languages other than English may display Outlook folder names in English.
Customers who downloaded and installed version 1.0.1423.65 of the Sign-In application and experience either of these issues should install the new version 1.0.1427.040 (or later) of the Sign-In application, which can be obtained from the Microsoft Download Center.
Customers can quickly determine the current version of their Sign-In application by selecting the “About” tab in the Sign-In application. The version is listed as: “Current version: x.x.xxxx.xxx.”