How would this me moderated?
We'd probably have the moderators hang out in the chat from time to time, but the rooms will be mostly user-policed with some way to report abusive users. And you'd have to be registered and logged in to use the chat system.
Everyone who starts a room is a chat moderator
It depends how complex of a live chat system we find. I've seen some which extend moderator powers to users who create channels, let them password-protect their channels, etc. I just don't know how advanced of a chat engine we'll end up with, so cannot promise anything.
is this in game chat like on shockwave?
No, it would be separate from the games. However, this does raise a tricky point about where on the site we place the chat window so you can continue to chat while you browse around the site.
do you guys want to keep the same strict rules of the forums about profanity?
Yes, and we'll want to find a chat engine that gives users a way to report other users to the moderators/admins in some way, whether it sends a log of the last 50 lines of the chat or something.