Of course I wasn't smart enough to figure this out on my own. The good folks at Openfire built a server that you can host locally. It's super easy to set up, takes only a few minutes. Luckily, I don't have to explain a step by step because the Toon Town Blog covered it so nicely. Following Nathan's instruction was a breeze!

And yes, you can do this already using a jabber server that uses the MSN transport but you have to deal with server down time, putting your login info out on someone's server in another country and overall confusion on how to get it set up. Openfire makes all of that go away, give it a shot!

One last thing, you won't be able to take advantage of iChat video chat (or some of the other advanced iChat features) with your MSN buddies but really not a show stopper for me.