This has great potential for teaching programming concepts to novice computer scientists. I went to talk at Computer Assisted Learning 07 recently, and there was a talk about teaching with Alice (minus the cool characters). As you'd expect, the students lapped it up. As it turned out, they then had trouble transferring to using more standard programming tools in the second year.
We're restrucuting our curriculum on our computer science and Information Systems degrees, so we should consider using Alice plus Sims. I'm also thinking of using Second Life (linden script) after hearing a talk by Dave Taylor about using Second Life for physics teaching. I suspect it might be hard to convince my colleagues of these ideas. Computer scientists are oddly conservative considering they're meant to be innovators.