So, after today's updates empathy started working with telepathy-butterfly. I 
don't know what caused this, although there was an update for something called 
python-papyon. Looked it up on karmic changes mailing list and says 
"papyon (0.4.2-1ubuntu3) karmic; urgency=low

  * debian/patches/03_git_fix_utf8_problem.patch: fixes login in cases with
    unicode conversion errors. (LP: #439638)" and
"Description: 
 python-papyon - MSN client library written in Python"

(https://lists.ubuntu.com/archives/karmic-
changes/2009-October/010937.html)

Think the problem is solved, thank you everybody :)

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Empathy doesn't connect to MSN
https://bugs.launchpad.net/bugs/442686
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