Configuring preferences and options in Outlook.com
As other have already said this is terrible UI and needs to be fixed. If it's a "feature" its a terrible one - as attested by the amount of replies on this thread. I've recently come back to Outlook after about a year in Gmail and this was not a pleasant surprise in my calendar!
At least give users an option to change how current time is displayed if you think some people prefer this view.