Croquet is an open source virtual world system (like Second Life) that is rapidly growing in popularity among educators for its extra functionality and ease of use.

The Croquet team at the University of Minnesota are currently putting together a very interesting project as a teaching tool for Spanish Language Pragmatics, which they have called Croquelandia. As you can see, it allows learners to explore a space and interact with other students (and native Spanish speakers) in Spanish. The conversational options that are selected (in this case with a non-player character) determine how the conversation proceeds.

(Click image to watch YouTube video.)

Very nifty.