Shoutbox

Concerning the DPs, MSN 7 still works the same way as 6.x.
All Display Pictures and Custom Emoticons you receive are saved on your computer. They are not saved as image files but as *.bin files in some "Temporary Internet Files" Sub-folders.
So basically, to retrieve them, you can do a file search on your computer for *.bin and then pick the files which are listed to be in a subfolder of "Temporary Internet Files" and copy them to wherever you want. Then rename them to .png and you will see the actual Display Pictures.
There are some programs that do this searching bit for you, the CE/DP stealers, which can be found here.

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Also see these interesting posts about this: topic

More info about "stealing" display pictures and custom emoticons:
CookieRevised's reply to display pictures

More info about where MSN Messenger stores the DP's and CE's:
CookieRevised's reply to Where does MSN store it's avatars?