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This is weird because while status bar of wireless connection tells me that it still identifies hotspot (Not Available) and internet is not accessible, my email client (Windows Live Mail) freely pulls out messages from IMAP server and i can surf as well:

enter image description here

Is this some kind of bug?

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what software (or softwares) is the wirless using? Meaning there are installable softwares for wireless devices that can both conflict and confuse with windows zero wireless configuration stuff. The wireless could easily be showing connected via its own software ? but not using the windows paths? – Psycogeek Jan 29 '12 at 14:16
No software, just plain Windows zero configuration. – Boris_yo Jan 30 '12 at 0:09

I believe the connection status as reported by that icon reflects what the Windows "Network Awareness" (or NCSI) facility thinks that the state of the system's Internet connection is.

In my experience, it doesn't always reflect the true state of the system's Internet connection.

I've found if you disable it (using the registry edit found here) it produces similar behavior on a laptop I have - it does not say "Identifying..." but it does correctly identify my wireless SSID - and yet says "No Internet Access." I also experienced weirdness with that icon when experimenting with my own Linux-based DNS.

I'm not aware of any programs that perform the equivalent of that registry edit. Furthermore, according to that linked Microsoft KB, it says programs that rely on NCSI might not work properly if NCSI is disabled. I don't know of any that do rely on that. I've not experienced any adverse effect on the laptop other than the erroneous message.

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Whether NCSI is disabled or not, it still does not work properly :) – Boris_yo Jan 29 '12 at 8:21
It's a long shot, but maybe something may be interfering with NCSI such as an access point web page, transparent HTTP proxy, or DNS interception. – LawrenceC Jan 29 '12 at 16:06

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