The Avatar system right now is really just for having a giggle for the moment.
A new XBLA title from Ninja Bee takes advantage of the Avatar system so you can play as yourself, and Uno also recieves a nice update when you start it that allows you to have them show and emote while you play with friends over your gamercard or camera.
Primetime is really where the Avatars will see their true workout as far as what the grand scheme is for them. Although still there are a number of features that won't be implimented until the next update to the XDK in Spring... still I'm sure those of you who have premium themes might like the new 3D backgrounds for your parties and it is a good laugh seeing your friends.
Some aspects will be released prior to the Spring Update to make the Avatars a little more interactive in Party Mode, but a few things have been taken from the update. One was the confidence that the servers should easily handle the usual Winter influx given the sheer number of people who logged on and downloaded the update the moment it became publically available at 10am GMT (2am PST), truely staggering.
Although there are some performance issues that currently are directly linked to Live's performance. Probably most noticeable is the freezing on your visual friends list, but there are a few other issues like Lives download performance and peering; although the system should stabilise within a week as it all gets fine tuned for daily useage, everyone can still expect some teething problems.
While it has been noted over and over by a good majority of people across the web, the receiption on the whole is good; but still only a small number of people actually see much of a point, with more still saying they prefer the old blade system.
Personally I wish that there had been a system in place over the past month (while the Dashboard has been in it's current ready-state so to speak) where everyone could flip between the new and old systems.
Realistically what the new dashboard offers, past a much better cleaner presentation (particularly on HDTVs) is performance.
Games load quicker, almost instantly in most cases.
Your Guide which now provides you with direct links to practically your entire Xbox Experience is faster to access and use... not just slightly; but seriously how often would you be in a game to get a message press the guide button and have to wait while the guide took it's sweet time to appear then populate with the message?
Depending on the title you were playing and live connectivity performance this could be between a few seconds to almost 30seconds at times. The new system is practically instant no matter what you're doing.
If you could switch between the two (like some of us have been the past month) trust me, you REALLY start to appreciate just how much damn quicker the guide is.
There are other little touches that might not be obvious but you'll come to appreciate, are things like being able to scroll description text rather than it randomly scrolling. Direct information, screenshots, videos, downloads, etc... again all right there and split in to easier to manage sections.
The alphabetised sorting, with direct links to each letter and searching features for those with the messenger boards (or USB Keyboards provided you set to you're language + Keyboard type)
Installing to Hard Disk, not only great for games on their last legs; but in the majority of the Xbox 360 library will drastically improve loading times.
Fallout 3 for example, running normally from disc will take up to 30 seconds to load areas; where-as from HDD the loading screens practically disappear. Mirror's Edge is another good example as the entire game almost eleminates loading times running from the HDD.
There is a selection of currently 11 Community Games online right now, and you can just expect that number to keep growing over the next few weeks/months. All with Trial modes, information, screenshots and videos just like XBLA titles.
Background downloading has been drastically improved, performance wise but also streaming bandwidth has been increased as well allowing 720p to run on regular 2Mbit Broadband rather than just the previous 8Mbit requirement before.
There are new display modes available for HDTVs allowing for a larger range of Widescreen and Normal Aspect modes to take full advantage of your HDTVs.
Realistically I think everyone expected some complete renewal of Xbox Live; sort of like how Xbox 360 originally hit with seriously awesome new features over regular Xbox Live. Although sure the new party system is quite a fun new feature... realistically not much has changed in the way of what is available.
Instead you've got a much easier to navigate system, that for the most part is far quicker to get around and access. It's not a revolution that was expected, but over time as people become more used to it; it will become a change that everyone will embrace because of the subtle changes not the major ones.
Basically the difference is like Windows XP and Windows Vista.
Once you get past the visual differences, on the whole they're the same thing doing the same job... while it's the major differences people want now, in a few months it's the subtle ones that people will wonder how they ever lived without.