The future of Xbox Live‘s avatar system looks bright, with Microsoft revealing that avatars will support deeper integration in games and sport items designed by third-parties like special outfits and more in the coming year, all potentially for free.

The landscape of avatars in the New Xbox Experience is admittedly a tad homogenous. Sure, you’ve got your quirky facepaint options and a silly hat here and there to stick on your virtual self, but for the most part a scan of the avatars on the average friends list gives the impression of what it would be like if The Gap decided to build an ad campaign entirely using Miis. Where are the options for dressing up Avatars like complete fools, or, better, expressing the rampant fandom that beats within the heart of any passionate gamer? They’re coming, according to Microsoft’s Aaron Greenberg.

“We’ve just handed off all the code to developers so they can not only integrate avatars into their games, but they can also have things like unlockable content, special outfits and things like that, so game assets can be integrated into avatars,” Greenberg revealed in an interview with EDGE. “As gamers, we definitely want to integrate our favorite game characters. I think that’s the kind of stuff you should expect this coming year.”

Sounds like LittleBigPlanet might not be the only game in town for sticking a Ryu headband on a custom character.

Though the idea of microtransactions naturally looms over this kind of announcement, Greenberg is quick to assert that isn’t Microsoft’s philosophy when it comes to avatars. “We didn’t create avatars so we could sell people clothes,” Greenberg explained. “Who knows what will happen in the future, but for now, all of the gear, all of the clothing is free. And if developers have unlockable content in games, you’re not going to be charged for that.” Let’s hope Microsoft stays true to Greenberg’s promise – nobody wants to pay for silly accessories.

Greenberg also commented on the future of digital distribution for Microsoft, perhaps lending some credibility to rumors reported on earlier this week that Fable 2 would be seeing a full digital release. “How fast [full-game downloads] happens, who knows? We’re definitely paying attention to it,” Greenberg said. “We don’t have anything specific to announce today, but it’s something we’re watching for sure.”

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