I hope the following solution works.
Go to the folder C:\Documents and Settings\Username\Application Data\Microsoft\MSN Messenger\number, with Username being your Windows username and number the number that symbolises your email address. Clicking Start > Run and typing
%appdata%\Microsoft\MSN Messenger should show the folder that contains the numbered folders right away.
To find out what number matches your email address, download
http://shoutbox.menthix.net/attachment.php?pid=291329 and enter your email address. Clicking Generate will show the number.
Go there and delete the folder called UserTile and delete the folder called Backgrounds. Reboot and add your display pictures again; your problem should be fixed.
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