Paint.NET v2.1 has just been released.

Description taken from the site:

Paint.NET is image and photo manipulation software designed to be used on computers that run Windows 2000, XP, or Server 2003. It started development at Washington State University as an undergraduate senior design project mentored by Microsoft, and is currently being maintained by some of the alumni that originally worked on it. It is meant to be a free replacement for the MS Paint software that comes with all Windows operating systems. Paint.NET has many of the powerful features that expensive commercial applications have, including the ability to use layers.

It requires .NET Framework 1.1