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For all you Hotmail users out there, I am sorry to say that there is no official Hotmail gadget for Windows Sidebar. Nor is there any gadget created unofficially to work with Hotmail. However, after a lot of effort I have managed to track down and test a POP3 webmail gadget that will do just the same as what any official program can do. It is called NewMail Gadget and it is available right here.
After downloading the gadget from the above link, right-click on Windows Sidebar and select Add Gadget. Find the NewMail gadget and drag it into the Sidebar. Right click on it to set it up. Enter in all of the pop3 and receiving options for Hotmail, which are:
Incoming server: Pop2.live.com
Outgoing Server: smtp.live.com
When you have set it up correctly, you will be able to choose how often you would like to check your mail. You will also be able to display options for the gadget that are customizable to a certain extent.