I want to develop ASP.NET C# based MMOG (Massively multiplayer online game). I would be using ASP.NET Ajax control kit, jquery and MS SQL server 2005.
Q.1)How feasible .NET 3.5, ASP.NET with C# in handling thousands of users simultaneously.
I would also incorporate ASP.NET ajax based chatting system with chat rooms alongside the MMOG.
Q.2) Do you know any of the sites (MMOG) using ASP.NET ?
Q.3) What are the best practices for Chatting System as mentioned above?
ASP.NET and MSSQL 2005 definitely have no "built in" scaling problems. You will have to take care to build you application right and be prepared to dish out some money for proper hardware.
See for example the hardware setup that is scheduled to tackle the stackoverflow load.