The 90s were a weird time for the social internet. There wasn’t much besides text chat and shitty graphics, and eventually they were combined to create the Palace, a visual chat program.
In the Palace users would identify themselves with avatars. These were usually pixelated Bratz-type icons that came in contrasting sub-cultural flavors: sk8trs, punks, thugs, goths, preps. After dressing up your avatar you could chat with other users through text bubbles in front of a compressed jpeg of cheap furniture. You could also trade accessories, called props, like pixelated Korn t-shirts, Pikachus, and $20 sacks.
Sounds kinda like Habbo, yes, though the main difference between the Palace and Habbo is that the latter started in 2000 and the Palace started in 1994. This means Habbo is entirely pixel animation (which looks sharp and crisp), and the Palace is based on both pixel and jpeg/gif images, that have what we’ll call a “lowbrow quality.” Plus, Habbo runs on Flash player while the Palace runs on its own software. Habbo also has a currency system that you can use real-life money for, while the Palace doesn’t incorporate real currency.
The Palace user base consisted of socially repressed teens and bored housewives who had already taken to GeoCities scrapbooking. It was only a matter of time before a huge cyber sex scene emerged and quickly became the Palace’s greatest commodity. Cultural theorists called this exchange “teledildonics.” I don’t really know how it worked, but I think they would rub their avatars together or something.