I'm not sure about any filters, but what about a private chat room only for folks they have invited? With Chatzy they can also 'uninvite' them I see too, in the FAQ.

Just google private chat room and then read the FAQ for them, if available.

Can Net Nanny block MSN chat so you won't have another episode like yesterday? That's scary.

I know back when I used MSN chat and messenger in the settings you could select the people you wanted added to your list then set it to not accept chat from anyone not on your list. What are they using exactly the msn messenger to chat or do they go to actual msn set up chat rooms? That is what I would try to stop going to actual set up chat rooms, have them do private chats with only people in their accepted list and block anyone from getting on their list that you do not approve of. You can do that in the privacy settings.
Windows Live Messenger Tutorial
be sure they understand it they accept files or anything through there it is very possible to get an infection that way. Many files that get passed through IM and chat are done so to spread infection.

IF you let them go to pre-set up chat rooms on the net I would make sure they are monitored or moderated rooms where there is an adult watching out for what is happening.
This is an example of one, and I would encourage reading all the privacy policies for ones you do consider.
Kidzworld

We've tried to educate them and we've been keeping an eye on things, but yesterday we found SD13 chatting to a total stranger who was asking her where she lives and if she looks hot...

Kudos for keeping an eye on things, I like the Internet to a big city -- lots of great stuff but a few bad sections that you really need to be careful in. My gut reaction to your situation is that if your children are not capable to restricting their chat activities to people they know, then they are probably not mature enough to be chatting at all. I think you should use Netnanny to block access until such time as they can demostrate the appropriate maturity level.

I would also add that you should make it clear to them that they should have NO expectation of privacy and that as the adult you WILL BE regularly monitoring their activity. That includes chat messages, emails written and received, web sites visited, etc. If you haven't, the child(ren) should have their own account(s) on the computer, set to an ordinary user and incapable of installing any software.

Hey Mike funny you should say that about the monitoring. When we got NetNanny we did think about what to do with the privacy issue. You don't want to invade their privacy by reading personal stuff without them knowing, so we decided to do exactly what you suggested, how funny! We told them from the start that chatting at our house is NOT private, and then we did a test run to show them what we can see in the NetNanny reports. They were fully aware of what we can see, and we didn't have to 'sneak around' or feel bad about it.

Also, we did give them their own user account with limited access, so no installing anything.

They don't go to chat rooms, they were just private chats, but for now we will restrict the chat alltogether. We gave her the responsibility of only chatting to people she knows, she's obviously not mature enough yet to stick to that decision.

Thank you all for your advice, if we can't control who they invite then they're not going to have it at our place anymore, simple.

It's not just chats that should be monitored, it's ALL their activity. You're not being nosy or invading their privacy, you are protecting them as adults should do for children. If you thought they had drugs in their bedroom, you wouldn't think twice about invading their privacy; the computer is no different. Being proactive now can save a lot of grief down the road.

Yes we are monitoring everything, that is what I meant. We can see web-activity and chatting, gaming, anything. And the girls are fully aware of all this. We would not let them on the computer otherwise :-)