Email has been hacked

Starting to get a little as u can say upset

Change your email account and notify your correspondents of same.

The bottom line is don't use public email accounts such as those offered by gmail, yahoo, livemail, etc.
They have proven to be not secure and hazardous to your well being.
They work well for throwaway stuff, but I would never use one of them to send mail to anyone with whom I have a commercial interest or anyone I personally know. It isn't worth the risk as you have discovered.

I agree with ua549's view on free webmail accounts. They are too easy a target for hackers.

I believe changing the password again might have stopped this. We will see. What does the support at virtual dr think might be the best free internet security suite to get and also what do you think about thunderbird for email?

I use Microsoft Security Essentials plus a firewall.
For email and calendaring I use Outlook 2010.

Keep in mind that the perp wasn't sending email from your account after you changed the password. After that they can only use your contact list. Access to your account was most likely obtained by malware running on your machine. Once your contact list is compromised there is nothing you can do to prevent its use. The contact must block the spam or change their email address to fix the situation.