Shoutbox

I'm against this choice too. However, I don't think it's a privacy issue, but only an "aesthetic" one.

Windows Live introduced the real name a while ago, and everyone that updated it on his profile made it visible to every Messenger contact, also in the previous version of Messenger. In addition, even if you don't put your full name on Windows Live, if you use the same mail address on Facebook, everyone of your Messenger contacts using Facebook will be able to find you on Facebook and so discover your real name.
So, if you worry about showing your real name, simply don't put it on Windows Live and don't associate your WL ID with anything that uses your real name!

For me it's not a problem to show my real name, I used to do it on ICQ, ten years ago, well before Facebook! However, the real name on ICQ was part of the (optional) personal information, but in the contact list and chat window only the nicknames were displayed.
It should be the same on WLM! Or, at least, it should be an option: I should be able to choose my own "nickname" (the display name), and the contacts should be able to choose to see me in the contact list with my real name, my display name or to override it with another nickname.

I have many contacts that use simply their first name as display name, and many have the same names! So, if they don't have a photo, I have to check their mail address to understand who they are... so I think that showing the full name somewhere in a tip or in the conversation window is useful. But I want to be able to show me as "Johnny" instead of "John" keeping "John" in my profile!