Engineers have just revealed the first release of Lively by Google — a virtual 3D chatting experience powered by GTalk. The platform, reminiscent of a Second Life-type setup, lets you customize an avatar along with a complete room. Characters can then interact with other, so you could actually come over and give me a virtual hug. Aww.

Lively also has built-in YouTube support that gives you the option of playing videos on virtual TVs and showing pictures on virtual frames within the rooms. Not bad.

The utility is even designed to interact with your desktop, so you can run any of the features right from your own environment. Google is also hoping to see Lively rooms embedded on various web sites for user interaction.

Here’s one, just for kicks, called Tech Stop:

And here’s a video demo of all the Lively features:

Looks like we may have another Google home run on our hands.

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