What you use on Live! when posting something you shouldn't say/think/know or if you think it might damage your reputation.
Anybody reading your posts will never work out who you are when using a pseudonym, this is because you use several and nobody will suspect that.
Using another person's pseudonym is really funny and will probably piss them off/flatter them/make them re-think drunken Live! posting.
A pseudonym is either accompanied by a really witty email address or a fullstop if you are being serious.