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I'm looking to have a livechat service integrated within a site where I can create chat rooms on the fly based on participants tied to that specific area... Anyone recommend using a 3rd party service I can install on the server that integrated easily with .NET, or just build one using polling method? I'd like something with socket connection, but not sure what's out there that either cheap or free that I can use.

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Check out http://www.jabberstudio.org/. You can find .NET opensource clients. You can refer to http://www.codeplex.com/site/search?projectSearchText=xmpp for a headstart.

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