Gamers have made it clear that advertising is OK if it is contextual and non-intrusive. Links here, here and here. In fact, it may even be making brands “cool.” And there are scads of articles about what in-game advertising means to video games:
Some Dos and Don’ts, an overview and even a thesis.

For me, a question arises: does all this data hold up in online games? Or how about branded games? Many online games already carry a marketing message and are played for free. Is it more challenging to create immersive experiences that are brought to you by Brand X and then you see Brand X peppered liberally throughout the game? Or is that acceptable? What are the limits of immersion, suspension of disbelief and acceptance that your favorite online game is, in fact, an advertisement?

Advertising is equally afloat in MMOs (massively multiplayer online worlds). While the number of active users or subscribers is relatively small in Second Life (500,000 active users) as compared to World of Warcraft (8.5 million subscribers), we’ve been hearing endlessly about the colonization of brands within Second Life. Why not the focus elsewhere? Somewhere the numbers suggest a brand may reach a larger audience? And now that brands are shuttering their Second Life presences, will they be willing to try again with other MMOs?

UPDATE: From Ilya Vedrashko’s blog. When are advertisers going to jump on this opportunity?