For a while now, Psi users have been requesting several changes and additions to the roster (or ‘contact list’). These requests include grouping contacts into meta-contacts, nested roster groups, and displaying user avatars in the roster. We have been postponing all these changes to the roster as much as possible, because none of us wanted to touch the roster code, for reasons I'll explain below. This year, Psi is fortunate enough to have Adam Czachorowski (aka Gislan), a student from the Google Summer of Code, to work on roster improvements.
So far, the major cause of all Psi developers staying clear from doing substantial roster changes is probably the fact that all roster-related classes are very tightly coupled to each other. This has several consequences:
What Gislan will exactly do in his Google Summer of Code project still has to be worked out in detail. He will be responsible for a major part (if not all) of the roster rewrite, and get some new functionality in there as well (since that will be a breeze with the new code). You can follow his progress on his blog, and get more detailed technical information on the project page for his GSoC project.