My research tells me that Hotmail, .Net, Hailstorm, and Windows XP are all tied to Passport, and therefore may carry the same risks as Passport, although only the lawyers can decide for sure. Ask your friend how comfortable he feels having Passport as a single point of failure for his entire business, especially since that single point of failure isn't even in his company's sphere of influence. If your friend is an employee, you might gently suggest he send a paper memo outlining the problem, to his boss with copies to others, and a copy for himself. In this way he absolves himself of the responsibility for failing to act, should upper management decide to fail to act. Finally, if it looks like you've gotten through to your friend, you might want to ask him to tell his friends.
Recursion is a good thing.
Suggest alternatives Warning against Passport does no good if that's the only game in town. Mention that Hotmail can be replaced by a hundred different mail services. I've heard that IBM WebSphere does a good job replacing .Net. I'm sure there will be XML solutions that don't require indenturing your data to Microsoft. Sticking with your current Windows, or migrating to Linux, are both good alternatives.