I FOUND THE SOLUTION!!!!!!!!
It took me a few days to figure it out, but I finally broke the system!!
I too was frustrated with the stupid way microsoft handles this whole blocked situation. So here's what I did (you will need to have submitted at somepoint an alternative email):
Once you click on "can't access my account", choose "I think someone else is using my microsoft account".
You will be asked why you think this is so - just choose other and move on.
Now you will be asked to provide your hotmail ID (email address) and fill in the "captcha" textbox. Then you will be asked to confirm your alternate email address - they will send a code.
Once you fill in the code you will be asked to beef up your security with other crap. You may also need to provide yet another alternate email address - I know it's stupid.
Finish the process and your account will no longer be blocked!