That just reminded me of something I tried that was similar, I think it was called Visual Chat? It looked like a 2D cartoon, but each person controlled an avatar and could move around and talk to each other, go to other rooms, change expression, gesture, etc.
Microsoft bought whatever that was and completely ruined it, just like they ruin everything else they buy.
It's like the Midas touch: they make it shiny, expensive, and of little use.