Sometime in March of this year, Microsoft removed the ability to to target your ads based off of age and gender.
They quietly pulled it and there was no real formal announcement about it, as far as I can tell. Some blogs did pick it up but it didn't hit the mainstream coverage from what I can tell.
Yesterday, one advertiser noticed and asked where it went. In response to that, a Microsoft advertising representative responded saying it wasn't a good targeting option because users didn't tell the truth. John from Microsoft said in a Microsoft Advertising Help thread:
Actually age & gender were removed. There are certain inherent problems when you ask someone this information. Some people add the information accurately, most don’t and even more don’t add the information at all. So if you use age and gender, your limiting yourself to what information was provided by the searchers when signing up for Windows Live. I hope that answer assists you.
The options when it was available was to target based on male vs female and ages in groups of 18-24, 25-34, 35-49, 50-64 and 65+.
Forum discussion at Microsoft Advertising Help.