If so, what is their file extension?
It is possible. However there are two major points I should bring up.
Two, for games (and activities in general) to be properly usable outside of testing, they’ll have to be uploaded to a server that hosts them and can list them in a way MSN understands. Luckily, Escargot has its own server for that, but it isn’t a free-for-all and right now I plan for activities/games to be hand picked by me and valtron (and maybe others when the time comes). If whatever you make is good enough we could consider uploading it to the activity server, or you could opt to make your own activity directory server, but that isn’t easy to get up and running and the directory server is configured from another server, so you’d have to find a way to make MSN connect to a different configuration server to make it use a different activity server.
Regardless, have fun.