[Update] Games For Windows LIVE and Xbox 360 getting virtual game room

Xbox LIVE Avatars are cute, but there's not much you can do with them, save deck yours out with virtual items that cost more than fast food combo meals. 

A new LIVE feature called the "Xbox Game Room" could change part of that.  At a glance, it looks like something ripped from the virtual spaces of PSN, then cartoon-fied.  Based on a teaser vid Microsoft released just this evening, we assume the Avatars can walk around an arcade space with some degree of freedom.  Players can customize their own arcade rooms (that will likely cost money) and challenge friends to numerous arcade games within their virtual home sweet home.

The Game Room is scheduled to hit Xbox LIVE and Games for Windows LIVE (PC) this spring.  We can assume this means GFWL will be getting Avatars as well -- yay!

Update:  Microsoft decided not to remain secretive, so here's more on the Game Room.  Looks like players can buy games for the same price "as a DVD rental."  For that authentic arcade feel, you can actually pay to play single games and insert additional "tokens" into the virtual platform as you play.  More details after the video, including cost.

How Do I Play?
An Xbox 360 console or Windows-based PC and an Internet connection are all you need* to access “Game Room.” “Game Room” and associated games can be found on your Xbox 360 in the Xbox LIVE Games Marketplace or in the Games for Windows — LIVE client on your Windows-based PC.

How Much Does It Cost?
It is free to download “Game Room,” which you can then populate with classic arcade games available for individual purchase. Buy games once and play on both an Xbox 360 system and a Windows-based PC for 400 Microsoft Points. Or, to purchase a game for only one platform, each individual Xbox 360 or Windows-based PC title is 240 Microsoft Points. You also have the option to pay to play a single game, just like dropping two quarters in the slot in the old arcades, for 40 Microsoft Points. Visit your friends’ “game rooms” and try their games free before you buy.

“Game Room” Specifications

• One or two players
• HDTV 1080p
• In-game Dolby Digital
• Voice chat
• Avatar support
• Online multiplayer (one or two players)*
• Cross-platform leader boards
• Cross-platform Achievements

* Xbox LIVE Gold Membership required for online multiplayer on Xbox 360. Xbox LIVE requires broadband access.