Yes I noticed this as well. The last Windows Update offered me Windows Live Mail. I've refused the update so far because I don't need it or the extras it offers either. It surprised me that Microsoft has attempted to download and install their software this way because it is not a security or critical update, and neither is it an Operating System update. it is just an application.
I haven't yet found a way to 'hide' the update from my list.
In your case it seems WLM has been downloaded and installed. You're right that it is a replacement for Outlook Express, but you don't need to use it if you don't want to. If you use Outlook, and you are happy with it, then that's fine, continue using it.
Here's some more information on Windows 7 and Outlook, it might be useful;
My PC has downloaded and installed Windows Live Mail.
Is it a replacement for Outlook Express for Windows &?
Should I replace MS Office Outlook (not Outlook Express) with this Windows Live Mail?