Man, I'm starting to want Home to be just a bigger LBP lobby. Look at the gazillion ways you can customize your characters, space... The game themed objects, outfits, textures.... The infrastructure is already better and more refined that Home. I know it's too cutesy for some, but it would totally destroy the Mii and NXE avatars. You could still have mini games and that sort of thing. You could have TV screens and adverts if you wanted to. You could still charge for some of the extras like LBP is doing already.
If Sony wants to appeal to the casual market, LBP is the way to shape Home. Screw the 3D stuff and make it 2.5D like LBP.
I can tell you right now. I have more fun in my LBP pod with some buds than with Home. Sony should really consider this. It's probably be less taxing to not have to do full 3D for everything in Home. And I think brand integration (as is being done with MGS4 here) would be more effective.
Now I'm getting depressed because I know it's not going to happen.
Maybe they could still have the same avatars but use the same 2D engine of LBP. Think about having your apartment be a LBP level the size of say 10 LBP pods, and customize to your hearts content. The structure is all there already. Make it happen Sony!