I got a good laugh off of this, but is it really possible to get better quality from a lower bitrate?
Sure, if you also switch to a better codec, such as using H.264 instead of MPEG-2. However, I don't think that's what's happening in this case.
The Microsoft announcement says "Use of the software is governed by the Windows Live ID Sign-in Assistance 6.5 Beta License Agreement accessible as a file in this download." So you can't read the terms of service without downloading (and installling?) the software.
If you scroll down further, you'll see "Windows Live ID Sign-in Assistant 6.5 beta License Terms.rtf" which can be downloaded and viewed separately without having to install the program.
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