The purpose of this thread is to outline and discuss the difference in formats between WindowBlinds (from Stardock) and .msstyles on XP (created by Microsoft).

In my opinion, the format of a skin ultimately determines what kinds of skins are made for it.

For example, Winamp 2's skin format is very basic but talented skin authors, working within those confines, can produce outstanding results.  By contrast, Windows Media Player skins are more free form than Winamp 2.  Anything done with a Winamp 2 skin could be done by a Media Player skin but the opposite was not true.

We'll start with MSStyles on XP.

MSStyles on XP
On Windows XP, Microsoft created a skin format called .msstyles. Microsoft initially created Luna.msstyles (they subsequently have released a couple of other .msstyles).  Microsoft didn't intend third parties to use .msstyles so they required that they be digitally signed by Microsoft to be used.

However, even before Windows XP was publicly available, people had managed to patch the fiile uxtheme.dll to disable digital signing checking and the world of XP msstyles was born.

The .msstyles format allows skinners to change the Start bar, Start menu, virtually every major control, the border of a window, and the frame of a window.

The limitations on .msstyles borders do not support alpha blending, borders cannot be larger than 2 or 3 pixels and the title bar is limited in size.

Skinners can also not add additional title bar buttons or move title bar buttons.

Animations, title bar text backgrounds, system icon placement are also not supported.

However, IMO, these limitations have generally not been a problem any more than Winamp 2's limitations were a problem.  Many users prefer clean, minimalistic skins and msstyles can deliver that.

WindowBlinds

The WindowBlinds formats have evolved over the course of years based on demands of users.

There are two formats currently (UIS1 and UIS2).  UIS1 is a simpler format that is similar in scope to what MSStyles but allows additional title bar buttons and the movement of title bar buttons.  But otherwise is fairly equivalent.

Most skinners use UIS2.  UIS2 allows for animations, alpha-blended controls and title bars (i.e. title bars you can see through or have anti-aliased edges and such), alpha blended Start menus, Start bars, etc.

Besides alpha blended controls, the most noticeable difference users will see are the borders and title bars can be sized any way the skinner chooses. 

As a result, a skinner could create borders that are very thick or with very large title bars. Buttons can be placed anywhere (including the sides and bottom of a window). Additional buttons such as links, roll-up buttons, etc. can be created as well.

The plus side is that WindowBlinds allows a more free-form sense of skinning.  The downside is that skinners can hang themselves with this freedom so you can end up with gaudy or "bloated" looking skins.  When done well, you can create some truly amazing things too. 

Since it is a super-set of what msstyles can do, WindowBlinds can create minimalistic skins. In fact, WindowBlinds skins can do away with title bars and borders entirely if the skinner chooses to make a skin with just a nub to move the window around. 

SkinStudio can convert .msstyles to WindowBlinds format. However, not all msstyles convert perfectly without tweaking the settings in the conversion dialog.

As far as formats go, like Winamp vs. Windows Media Player, it ultimately comes down to what skins you want to use and what kind of skin you want to make.

Msstyles are IMO easier to make than WindowBlinds skins and if msstyles can produce the skin you want, then that's the way to go.  On the other hand, skinners may find msstyles limitations to confining for what they want to make and want their skins to run natively on XP and Vista which WindowBlinds skins do.

If there are any questions or comments on these skin formats, please comment here.  There are lots of experts on both formats hanging around who can answer detailed questions on these topics.