I suggest to combine the two sections: "chatterbox" and "other users":

1. The chatter box is too small. When you type, you probably can only view 20 chars at the same time, and cannot see what you said 20 chars back, unless move your cursor all the way back. How about give it more space.
2. When you want to send a private msg, you have to say, /msg amonk, but if we have a drop down list of all the monks lurking around, you can simply select his/her name. If there is a need, we can even allow multiple selection. For the multiple selection thing, it really depends on what the majority want, and what they usually do. But we definitly can have a user called "all" for broadcasting.
3. You should be allowed to type in the drop down list, as you may want to send a msg to someone is not online, which means his name is not in the drop down list. When I say drop down list, I am thinking of the combbox, well, you know what I mean.
4. This mostly likely will not require more space, as the other users section become much smaller, just two lines, a title says "other users", and a text box with a down arrow, which you can click to view the drop down list. For the space we saved, we will use it to make a "luxury" chat box.