Ninja Bee's first XBLA game, A Kingdom for Keflings, was the first game to make use of Xbox Live Avatars, now on their follow up to the game, A World of Keflings, they plan to incorporate Avatar Props.
People put a lot of work into their avatars, A Kingdom for Keflings is already a great place for that work to pay off, but A World of Keflings has even more extensive avatar support. One of the coolest examples being the ability to see players' props in the game.
Bringing avatar props into the game just made sense... Much like A Kingdom for Keflings, A World of Keflings is a game that emphasizes the player's choice to customize. You design the Kefling world the way you want and you design your avatar however you choose.
However whilst props will appear in the game, they will not add any new functionality other than to animate.
Source - http://uk.xboxlive.ign.com/articles/109/1093311p1.html