Microsoft's MSN today entered the email storage race, upping inbox limits for non-paying Hotmail customers to 250MB - 125 times bigger than today.

The upgrade has been prompted by Google's entry into the free email game. The search company upped the ante in April, when it announced beta tests for Gmail, a service offering 1GB of free storage. The catch is that Google scans the email client to deliver targeted text ads, much to the chagrin of privacy activists.

Yahoo! threw its hat into the ring last week, increasing the storage limits on free accounts to 100MB, up from 4MB. At the same time it whacked up limits for fee-paying customers to 2GB.

Microsoft has adopted a similar policy, distinguishing between fee and free. In the summer it launches an upgrade premium email service. Called MSN Hotmail Plus, the package costs $19.95 a year in the US. Customers get 2GB of online storage and can send attachments of up to 20MB. Also the ads disappear and account expirations are no longer. MSN Hotmail Extra Storage subscribers will be upgraded to the new service on Day One. MSN Premium subscribers will get the storage boost later this year. ®