Second Life facing real-world problems

It's also running into trouble with governmental authorities. In July FBI investigators prompted Linden to shut down Second Life's casinos because online gambling is illegal in the U.S. German police are looking into allegations that members traded pornographic photos of real children on the site, and several European governments are upset that adult avatars are having sex with childlike ones. Linden responded this summer by banning lewd acts with minors as well as "other broadly offensive content," a move that annoyed longtime users. Soon, grumbled one participant on the site's blog, "the only things left to do on Second Life will be getting griefed in sandboxes and going to church."

Linden is also dealing with other disgruntled users. After it booted Marc Bragg over questionable virtual real-estate deals, the Pennsylvania resident sued the company last year for confiscating property worth thousands of dollars. While Linden won't discuss the merits of pending litigation, it's clear that Second Life's virtual assets have actual value. Linden lets users retain the rights to digital imagery they create on-site, and the result is a thriving economy that's as real as it gets. Attorney Stevan Lieberman made $20,000 last year helping Second Lifers file patents, trademarks and copyrights. And $6.8 million changed hands in June on the site's Lindex, where the exchange rate is about 270 Linden dollars to one U.S. dollar. Congress is looking into whether this commerce should be taxed.