Christian's response, for those who are interested:

"libnotify can set a timeout of 0 to indicate that the notification should stay on-screen until acknowledged. However, it's best to only use this when it's absolutely crucial that the user respond to it, and really in that case, a dialog is more appropriate most of the time.

@reply or pidgin replies are possible, but isn't something that libnotify itself has to do. There should be plugins for pidgin to use notifications, and there's some apps out there that show twitter @replys (but I don't know the names off-hand)."

So it would seem that the application controls how long the message is displayed. That makes sense, I guess.