"Avatars" are digital personas available this holiday for all Xbox LIVE connected members and this spring for all new console owners. "Avatars" will be used in place of the gamer picture you have today and give you a much more lifelike, animated, and fully customizable persona for you to reflect who you are online."
There are no indications about how will these new Avatars be added into the Xbox 360 Dashboard, not to mention if Microsoft aims to make them available for use in any of the Live games. However, if this is not just a plain rumor (and in Microsoft’s case, it usually isn’t) do expect a very interesting announced during a big event scheduled in the near future.
And yes, I’m talking about this year’s E3 Media & Business Summit.