Well in MSN 7 (public beta) you click the emoticon button in convoscreen, then click on "more". Then to add new emotes you click the create button (rest is self explanatory).
I see you use the leaked beta of MSN 7, maybe thats where the problem lies. If you are not an official MSN Messenger betatester i advice you to downgrade to
the public MSN 7 beta (uninstall your current version, reboot and remove all folders pointing towards MSN Messenger..then install public beta), everything will work fine on that.