Anticipating an untimely demise for the virtual world, the University of Illinois at Urbana-Champaign will partner with the Library of Congress to preserve Second Life as a museum artifact so children of the future can enjoy mocking the clunky online world on class trips. [Library of Congress]

When all else fails, deny, deny, deny. Philip Rosedale, the founder of Linden Lab, is spitting in the face of Wired's recent exposé on the desperate state of Second Life, his company's virtual world. The magazines reported that advertisers are abandoning the thinly populated virtual world after discovering they've been taken in by the hype. But Rosedale told attendees at the recent AlwaysOn technology conference that, in fact, Second Life is just getting off the ground. We'll grant Second Life this much: Flat on its back, it has nowhere to go but up.

Following an FBI investigation into online gambling, software maker Linden Lab has banned all kinds of betting and wagering in its Second Life virtual world. So what's left for residents of the once-hyped, now fading virtual ghost town to do? Hook up for kinky sex, I guess, or wander through deserted corporate marketing exhibitions. Or, for kicks, rob some virtual banks. We're sure to see some desperation on the streets of Second Life: Virtual casinos are major landholders in Second Life, a source of tax revenues to Second Life maker Linden Lab, and some speculate that this move could be enough to send the virtual economy into a real recession.

A year late to the party, Newsweek has discovered Second Life with its usual laughably bad timing. Its cultural speedometer fatally tuned to a slower-moving society, the weekly magazine has lavished the 3-D virtual world with gushing praise at the exact same moment that Wired, one of the first to hype Second Life, has abandoned it. In the August issue of Wired, media writer Frank Rose dissects the disastrous failure of corporate advertising in Second Life, as major brands used to measuring audiences in the millions find themselves lucky to count their Second Life audience in the hundreds. More highlights from the Wired piece — and lowlights from the Newsweek article — after the jump.

Video of a real life enactment of what you'd experience if you chose to log in to Linden Lab's virtual world, Second Life... minus the obligatory furries, flying penises, and sex trade. [Via YouTube.]

Exploiting two marketing trends in one go, Altoids, maker of curiously strong mints, is curiously sponsoring virtual gay pride month in Linden Lab's Second Life along with the obligatory parades and accoutrement. In an apparent attempt to one up Yahoo's gay avatars, the Altoid "parade" is more gay avatars (a pirate and Uncle Sam apparently) standing around amidst gay pride flags and Altoids' ads with little resemblance to the crowds, excesses, and exposure of a real world pride parade. In fact, this is an instance where griefers add more realism than Altoid marketers forced to masquerade as "Pimp" trannies. What's a virtual gay pride parade without flying penises?

TIM FAULKNER — Second Life may face a new threat, the need to apply and enforce real law in its virtual world. A Pennsylvania court has denied two requests by Linden Lab, which would have effectively ended the first legal challenge, Bragg v. Linden, to the Second Life creator. Instead, the decisions may grant greater rights and control of the online world to the users. Maybe that can be viewed as validation, but it also spells trouble for the online fantasy world.

TechCrunch reports that Linden Lab, creator of virtual world Second Life, has acquired Windward Mark Interactive, maker of an advanced atmospheric engine and cloud simulator, which will bring a much needed graphical improvement to the skies in the online world. Much needed, in the sense that, the visual realism of the online virtual world significantly lags that of comparable offerings like World of Warcraft; not in the sense that it answers any of the significant questions facing Second Life like currency conversion and valuation, ageplay, or long term profitability. [Original Image: Tim Bray]

Microsoft continues to throw marketing dollars at what it perceives to be the coolest, hippest, freshest new form of marketing. This time building its own island in Linden Lab's Second Life featuring sophisticated architecture (with glass walls resembling an Apple Store), a blimp, suspension bridge, and reflective modern sculpture. There is also an auditorium which Microsoft presumably hopes to fill with the avatars of attentive developers.

"Drinking the Kool-Aid" is what Silicon Valley people say when they want to refer to an unquestioning acceptance of a particular corporate philosophy. It's used humorously, which is strange given that there are plenty of people in the Bay Area who remember first-hand just how that expression got started. So how appropriate is it that Linden Lab, the company behind Second Life, was passing out free packets of Kool-Aid at a networking mixer called SF Beta here in San Francisco last night? On the back of each packet: "Come drink the Second Life Kool-Aid! Linden Lab is hiring!"

SCOTT KIDDER — We already know all about how Second Life has virtual millionaires and "male appendages" for sale, but there may be an even more exciting revenue model in store: virtual experiments!