Here's how:

1. Click the Messenger menu and select "My Display Image."
2. Select "Share my picture" and click Select….
3. Click one of the built-in pictures, or click Browse to find one on your hard drive. The picture must be a .bmp, .jpeg, .png, or .gif.
4. When you’ve found it, click OK at the bottom of the window.
5. Change your picture anytime by repeating this process. Or you can also switch during a conversation right in the conversation window by right-clicking your image, then clicking Choose a Picture.