Well a friend of mine have suffered this problem, first she can't receive files (.jpg) in MSN7.0, upgrading to the latest versión she finally could receive the files, but... she still can't open them, windows was blocking the acces to the files, and there was nothing in the Incoming files folder.
Finally I have discovered a solution for this problem, it was caused by the way windows blocks Attachments . It's has to be some kind off windows service that you can desactivate from Outlook Express, from here:
http://www.microsoft.com/windows/ie/images/community/columns/54140_329x345_security_F.gif
Well, if you Uncheck, and restart the computer...Problem solved! you can again receive, and open jpg files in MSN Messenger 7.0.