This isn't so much about using colors in name, nor about seeing the screenname of contacts in conversations (as many people don't like the very long blahblah in a conversatioon anyways), it is more about the Plus!'s custom names in general (and even more about the use of the (!N) and (!M) tags) and seeing customized names in the contactlist.
Patchou has removed the custom names feature in Messenger Plus! Live because Windows Live Messenger now includes a renaming feature for your contacts and thus the custom names would have become an useless feature (more or less his own words).
However, as many have pointed out before and as many _will_ point out as soon as Plus!Live is released, they are not the same and the WLM nickname feature doesn't have the same functionality than the Plus! custom names, especially considering colors, but more importantly considering the (!N) and (!M) tags.
It is indeed very true that the WLM nickname feature is a serious step backwards and I also hope that Patchou reconsiders and that the custom names feature will be re-introduced in Plus!Live so people can use the (!N) and (!M) tags again (and colors).
So to answer very short: no it is not possible with Plus!Live, WLM or any combination of it to alter contact names so that you have a personalized nickname _and_ that you can see the screenname or email that they have put for themselfs.
EDIT: to Patchou, if he reads this: no offense though, just mild poking with a stick
/ 
