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Your Windows Live ID is the one you use on Xbox Live, Messenger or Hotmail -- or any other email address and password combination you may have connected to Microsoft's services. This does not even have to be a @msn, @hotmail or @live account. It can even be your corporate or college/university email address and password.
Windows setup wants you to be as safe as you can, so it will ask you an additional security question to make sure that your account is safer than before. If you forget your password or find that your account has been accessed without your authorisation, you can reset it again from a Windows 8 machine or through Microsoft's online services.
Once you enter in your email address, it will begin to associate your account as a Windows Live ID which can be used with Windows 8. This part of Windows setup may take a few minutes, depending on your download and upload broadband speeds.