I had a look around and I think I found the answer to the above question. The answer happens to be there is no support for POP3 with Windows Live Custom Domains at the moment.I found the following piece of information here
“Right now these protocols are not supported for free or paying users.We are evaluating adding these protocols to the product in the future, but likely as part of the above subscriptions.We currently do support protocols for rich e-mail clients like Outlook and Outlook Express in the above subscriptions.”
So as far as I can tell there is no POP3 support for paying or non paying customers at present. However IMHO using Outlook Connector seems to be good enough. You can also sync your calendar with Outlook by applying the workaroundfrom thelink above.
Most of the questions and answersabout Windows Live Custom Domains can be found in that link above.