Oh absolutely that's part of what draws people to it, its a way to drop out of the real world and live in a fantasy world where people can easily create the lives they'd rather have.  Its not uncommon to see men pretend to be women, women pretend to be men, people who are married IRL having online relationships (even going as far as to have online marriages).  In my experience the drama level is usually very high as a result.  Partly because people do want their perfect fantasy life and the moment some other player doesn't "play along" with that, drama ensues.

I have seen more positive aspects to it.  I have one friend that runs an online Spanish language school using one such virtual world.  She actually teaches the classes online, has a virtual classroom set up with visual aids, links to reference materials, audio files, etc.  The classroom itself is almost like a web site you can walk around in to navigate.  She uses VOIP in world to actually talk to her students and listen to them.  Its pretty neat really, and yes, she charges real world money for those lessons.

I've also seen online concerts done this way.  A real band plays at some real world venue with camera's set up.  A live feed (sometimes multiple feeds) are sent in world to some virtual club or venue which has one or more "screens" showing the live feed.  People seem to enjoy it.

In some ways I can see these virtual worlds becoming an extension of the internet and world wide web.  Its a bit like the "matrix" / cyberspace fiction writers have been envisioning since Gibson coined the term.  But they are also huge time sinks.  You can easily spend hours in them without realizing it.  They can be very addictive, literally.  I came across a news story out of S. Korea about a young man who became so addicted to online virtual worlds he literally starved himself to death and died.

I have even seen people use things like 2nd Life to create virtual art similar (but lower quality) to what we do in Poser.  With computing power still advancing according to More's Law, I could see maybe next gen games offering closer to Poser like quality in a virtual world.  I could also see being able to create characters not just to pose for still renders, but animations and then be able to interact with them on some level.  Perhaps an early example is Star Wars: The Old Republic where your character can gain "companions" that you only generally control, have some limited level of interactivity and assist your character during game play.  Add some programming similar to what I think Shade was referring to with Maxis and you might have something more socially interactive.  That is your "models" would be capable of becoming interactive in world characters, companions, etc.

"Okay so Vicky, how about standing over there and lets get a few shots.  Give me some playful poses, not too sexy a bit understated.   That's it, work it... camera loves you baby..."  I'm laughing but it may be closer to the future than we think.