RE: Alternative WLM Clients
Windows Live Messenger/Plus! Live is probably your best bet if you're using windows. If you're using Linux, you could try Pidgin (as you mentioned), emesene, or aMSN. On OS X, there is an official Microsoft client (that doesn't support colors); Audium, which is based off Pidgin; and there are builds of aMSN for mac. I am not sure if aMSN is capable of displaying colors.
There are probably more, such as Trillian, but I do not know how well they perform, and which clients support color codes in names.
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