Nick names usually mean much more to people than Jabber IDs. This is especially true if the account is registered automatically, like done by Sugar.
If using @online@, contacts are added to and removed from the roster automatically. Since removing a contact also removes any customization (read: displayed name) it will use the "default" name (read: Jabber ID) on next login. For this reason the server needs to present a better name in the first place; trying to rename contacts to something more useful on the client side would be an endless battle.