it might "minecraftize" your avatar, but there will probably also be a character editor, its not like it would be hard to do, there are several sites for the characters for the PC version, implementing one in the 360 version almost seems like a given
"Well i actually performed the experiment dozens of times. The bad news is reality doesnt exist. The good news is we have a new cat graveyard" -GLaDOS
They can easily make a skin editor for the 360 version, based on the skin-editing programs I've seen for the PC version.
Nintendo used the system for Animal Crossing years ago: you got a grid that you would move a cursor on and place a color (selected from a list) in an individual pixel of the grid. If they make a grid for each individual part of the body, then it could easily be done.
It might be time-consuming, but it could definitely be done.
Opie & Anthony | Ron & Fez, XM 202/Sirius 197 (THE VIRUS) XBL - Maxx the Slash | PSN - Maxx_the_Slash