UPDATE: So apparently "Game Room" will have fewer similarities with "PlayStation Home" than I thought...check out some updated info, along with the full list of games that'll be available at launch.
Original Story: Microsoft's on-going efforts to make your avatar the end-all be-all of your online digital persona is continuing with their announcement of "Game Room." It's basically a virtual arcade filled with classic arcade games. You can walk your avatar up to arcade machines and start playing (for a fee). That's basically it.
The service will be available on Xbox 360 and PC, with players able to purchase "free play" of a game for anywhere between 240 and 400 Microsoft Points (or $3 to $5 in non-moon bucks). You can also choose to play just once for 40 MS Points, as an attempted throwback to the whole quarter experience.
"PlayStation Home" is obviously the closest cousin to Microsoft's new service, as both let you customize your online persona and walk around a virtual world, performing various interactions. "Game Room" has a much smaller scope, though, as there are currently no plans to expand the service into branded rooms for new releases or marketing partners like Red Bull. It's a virtual arcade. That's the extent.
So will people care? That's tough to say. There's certainly a demand for classic games on Xbox Live Arcade, but do people want to bother going into a virtual environment to play them? Granted it would be more approachable to a non-gamer than, say, a menu, but in the end it's really just a visual gloss as an alternate means of accessing your games.
Microsoft is planning to launch a whopping 1,000 playable arcade games on the service over the next 3 years, so they're clearly dedicated to the initiative. Whether it'll become the ghost town that "Home" has turned into...only time will tell.