You didn't think Microsoft's avatars were just for dressing up, did you? Oh, you did? Silly you. They're there to help Microsoft make money, as you can see in this patent for a walk-in advertising space.
The idea is that you walk around a "space" that's comprised of nothing but advertisements. And your avatar is no longer "you"; you're dressed up as an avatar of the advertiser's choosing. It's an ad for Verizon? You're Michael Bay. For Marley & Me? You're the dog. You get the idea.
To get you into this space in the first place, users would be "compensated" in some way for their time. Examples given are allowing them to use a fancy avatar that can do stuff, and offering prizes for ad-related trivia questions. To truly capture the horror of this idea, we'll let the patent explain for you:
In one example, to advertise the movie TRANSFORMERS, an advertiser may provide the robot BUMBLEBEE, which is a popular character in the movie, as the advertiser-generated avatar. The BUMBLEBEE avatar may include functionality to "transform" between the robot and the CHEVROLET CAMARO depicted in the movie. In another example, to advertise the cereal TRIX, an advertiser may provide the TRIX RABBIT as the advertiser-generated avatar. The TRIX RABBIT avatar may include functionality to say the popular catchphrase "SILLY RABBIT, TRIX ARE FOR KIDS." In yet another example, to advertiser the ZUNE digital media player from MICROSOFT CORPORATION, an advertiser may provide an image of the ZUNE digital media player as the advertiser-generated avatar. The ZUNE digital media player avatar may include functionality to change colors, change models, and play various digital media.
Cannot. Wait.
United States Patent Office [USPTO, via Siliconera]