Just updated a few minutes ago. I've created an avatar, browsed some of the interface and installed Halo3 to the harddrive (which is great because that particular DVD is REALLY loud in the DVD drive for some reason).
So far, I'm really liking it. The Blades were pretty cool back when the system was realed. But the new interface feels a lot fresher IMHO. It looks like it's pretty easy to use as well. It's also fast and responsive from what I can tell, which is all really good.
The avatars, well, they look better than those on the Wii, that's for sure. Plus they've got a better range of clothing (not to mention they HAVE a range of clothing

). I think they're nice. They certainly don't bother me since, as someone mentioned above, you don't actually have to work with them after creating them if you don't want to.
I'll be curious to see what kind of games might integrate the avatars in the future. I always thought that was actually a pretty cool thing on the Wii (in the suitable games, of course). For example, there's something really cool about racing around in Mariokart Wii, for example and seeing one of your friends (read that: their avatar) as a statue, on a billboard, etc. It may sound weird but I always felt that was really nice to be reminded of those people in such a way. Plus it could be really funny in some games to see your friends of family with a hula-hoop, for example

.
I don't think MS run the risk of losing their core gamers. It's the games first and foremost as well as XBOX Live capability that will bring them in. For adult gamers, again, it's the games, really. And I don't see MS giving up on games for core gamers and/or games for adults. I think they're simply trying to add more people which might just work in combination with the lower price point for the machine.