By Paul Mason Business Correspondent, Newsnight

Why did I decide to buy a racoon outfit? Why did I build myself a beachside loft apartment instead of a castle? Why did I make myself a thin, muscular white male with a strong resemblance to the young Elvis?

Watch the report

Well, like all the rest of the choices you make about your online alter ego, I wish I really knew.

When it comes down to it, avatars - online characters - project your ideals and fantasies before you've had time to think of them.

Which is what's making online virtual worlds one of the hottest business propositions of dotcom boom Mark II.

World of choices

I first came across the computer game Second Life when I was researching a piece about the IT business and saw that one of my guests on the programme had been interviewed inside the game.

I consider it another artistic medium, one that gives me the freedom to instantly create or remake Cory Edo

I signed up, logged on and was immediately confronted with a set of choices and issues that revealed more about "me" than I wanted to know.

I discovered the most popular places "in world" are lap dancing clubs, bars, casinos, rifle ranges and - in a rare piece of inspiration that could only happen in the fantasy world - places that are all of the above.

I moved on to the virtual - and far more virtuous - communities that have been formed: like Neualtenberg, the virtual medieval town; or Luskwood - where people put on furry costumes; or the Elf community dedicated to magic, mystery and big hair.

Online personalities

But I quickly realised I could go further.

'Yeeeeas, Paul, they've made me much better looking than you'

"Here", I said to Newsnight's real life editor Peter Barron, "why don't we broadcast Newsnight from inside a computer game."

Because the virtual money inside Second Life is convertible to US dollars, and people who make things can keep the intellectual property, it is possible to run a real life business inside the game.

I got in touch with Cory Edo - real name Sara Van Gorden - who runs a business in Second Life designing avatars - the idealised 3D personas that people use as their online identities.

Cory recreated the Newsnight set, Jeremy Paxman and myself - the latter with wrinkles and stubble rendered in full 3D realism, sadly - so we could record the historic "two-way" that will go out before my piece on online games.

A side of Jeremy Paxman the viewers just don't get to see

"For the creation of photorealistic skins such as the ones that were used on the Newsnight project," says Cory, "I took the face shot that was sent to us and split it in half, pasted this into the skin grid file, and duplicated it on the other side.

"After that, it was mostly adjusting things like the nose shading and the eye placement to fit the grid, and adding additional shading around the sides."

Like I said, stubble. Everybody else in Second Life gets to look a lot like Keanu Reeves or, if their avatar is female, a cross between Angelina Jolie and Jordan. The least I could do was give myself good pectorals.

Artistic freedom

Cory, who is a New York based graphic designer in real life, got involved to expand the creative horizon of what she's doing.

It is possible to run a real business inside Second Life

"The American film director David Lynch began his career as a painter, but became frustrated with the limitations of paint and canvas - he wanted his pictures to move, to make noise, to speak to the audience, and so he switched to film.

"That's how I feel about Second Life - I consider it another artistic medium, one that gives me the freedom to instantly create or remake, one that allows others to interact with and walk through what I've created."

She and her team design not only the look of the avatars but also the custom animations that make them move.

Business and pleasure

To their repertoire has now been added the famous Paxman arms crossed in disdain and, of course, the eyebrow. And my slightly Woody Allen-esque shoulder thing that I do when I forget my words. Thanks Cory.

"Starting my own business is something I've always dreamed about," she says, "but I never had the confidence in my abilities to do so until I started working in SL."

And she still uses the game - insiders prefer to call it a "world" not a game - for pleasure as well as business.

"I've found people that share the same artistic interests and goals as I do, along with just more-overall creative people in general.

"It makes almost no difference to me that I have never 'met' these people in real life - I know them based on their personality, which is far more important to me than real life appearances."

Paul Mason's report was shown on Newsnight on Thursday 5 January, 2006