Hi!
This has nothing to do with MSN Messenger 7 or Messenger Plus! 3.5. I saw the same effect a while ago with MSN Messenger 6.2 and an older version of Messenger Plus! I never thought it was a bug and therefore I did not report it
.
Nevertheless it would be nice to see the custom names of your contacts if they are both writing a message. Although there is in my opinion one possible problem with this: if you are using long custom names for your contacts, there might not be enough space in the chatwindow to display both names when they are writing a new message and in that case you won't even see that the second person is writing something. Maybe that displaying the email adresses is somehow better!?