i dont know about hotmail, but I have been able to use Gmail.
first, you will need to make sure that Pear Mail is installed in your testing server:
pear.php.net/
once you have Pear installed, in Universal Email select the Pear Mail using SMTP as the Email object.
for the SMTP Server, enter:
ssl://smtp.gmail.com
Port:
465
Username:
enter your gmail email address
Password:
enter your Gmail password
also, make sure that the from address is your gmail email address.