Yet it still endures, even though there are chat environments like IMVU floating around. Why? Probably because of its simplicity, its cheapness and the ease of customisation. With very little graphic savvy, you can have any avatar you want!
Here are a couple of examples of the layout:
(My Phalanx skin happens to be pink. It can be black, orange, purple, etc).
Here are some older shots of the Palace programme (essentially the same) with examples of conversation:
This picture tickled my fancy. The Psych comment was well placed! :D
You can see here that with the classic smilies (you can still get them for Phalanx) there are lots of silly props to wear. Or you can forego the smilie altogether like bsquared has in this picture and just have a cut-out character picture instead.
You go in and out of different rooms. If you see the funny white lines in the corner of the older pictures - those are the doors. You click on those to go to different rooms. Sometimes doors can be hidden, or they can be visible when you click on 'visible door' mode. Like any other chat like IRC or java chats with rooms, there will be mods to oversee things (bquared did that for us back in the Joxer Nights days, that's what the pictures are of above).