Narayanan, I found the same problem with online status (initiate a chat and they immediately appear offline). The messages still go through.
As for the Yahoo transport, I don't believe you can run it locally, unless you're running a Jabber server connected to the Internet.
And this method does not create true interoperability (i.e. Google Talk to MSN). You're still using your MSN credentials (on ursine.ca or whatever Jabber server you chose) to connect you with your MSN contacts.