(See the best response by FishMan123.)
So I made an icon in Dream Maker thats 32x96. I tried using it in a game, where player icons are usually 32x32 but I noticed that the game wants to put the large icon's waist where other player's feet are. This link goes to a .png that shows what I mean:
Is this just a limitation in byond or is there a way to fix it so that the big character's feet align next to the other 32x32 character's?
Best response
If I'm understanding correctly, you want to be using pixel movement. You should search around the forums and libraries for the "pixel movement" tag (if you're unfamiliar with it).

It basically makes it possible for you to move a distance other than the default step size (32 pixels), making it possible for that 32x96 icon to align with the 32x32
Thanks for the response. Im not familiar at all with pixel movement, but I looked around a bit and it seems like that has more to do with actual movement distance than positioning. I assume that pixel movement would be handled server side. I am simply using my own icon in a game that isnt mine. Heres a revised .png with some more explanation.
Setting the large mob's pixel_y to -32 will do a pretty good job for you, since it'd just be a visual thing entirely. Although the icon itself should be aligning properly at the bottom of the icon, not where the mid-section is.
I would say make the icon 32x96 in a separate dmi, that way you wont have to do pixel movement at all the entire mob will be intact, and it will be using the bottom portion as you want as the main part.
The problem of both the approaches mentioned above this comment is, that, well the first one would be purely visual, which means that the mob won't be able to be interacted with, and the second one's issue is that the mob will only be dense on the legs, which I'm assuming is not the type of behavior that you're looking for.

Edit: Nvm. It appears that behavior is indeed what you intend.