I don't understand what Microsoft's problem is. As it is, they let users download MSN Messenger for free. So I see no harm in allowing third party IMs to use MSN. I guess all they want to do is force the users to use only the actual IM and not substitute it with third party ones.
Coming back to the actual topic, yea I think MSN 7 is really nice. Some small touches and improvements over 6.2 have made it much better. But they are charging people money for all those custom avatars and stuff which I find silly as Yahoo! let's you do it for free. As for the alerts, if you took the time to customize YIM, you will see that you can set custom alert sounds