Okay problem has been solved...
!WARNING! This requires you to edit the msnmsgr.exe file. I am not responsible for any damage caused by following this advice.
Here are the steps:
1. Open msnmsgr.exe in reshacker (make a backup of original exe first)
2. Import your png file to the PNG resources
Action->Add New Resource:
a. select the file
b. In Resource Type put "PNG" no quotes
c. In Resource Name put 100
3. a. Open the UIFILE folder on the left
b. Select the 923 folder
c. Open the 1023 resource in that folder
4. Find the following code:
code:
<element layoutpos=client layout=filllayout()>
<element background=window />
<buddylist id=atom(buddylistview) layout=filllayout() />
</element>
5. Replace with the following:
code:
<element layoutpos=client layout=filllayout()>
<element background=window />
<png layoutpos=bottom flip=false idres=100 />
<buddylist id=atom(buddylistview) layout=filllayout() <background=argb(0,255,255,255) />
</element>
6. Press the Compile Script button
7. Save and run MSN
8. Admire your background
A preview is attached
edit: Thanks to Dan for getting me thus far