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This study investigates innovative interaction designs for communication and collaborative learning between learners of mixed hearing and signing abilities, leveraging advancements in mixed reality technologies like Apple Vision Pro and generative AI for animated avatars. Adopting a participatory design approach, we engaged 15 d/Deaf and hard of hearing (DHH) students to brainstorm ideas for an AI avatar with interpreting ability (sign language to English and English to sign language) that would facilitate their face-to-face communication with hearing peers. Participants envisioned the AI avatars to address some issues with human interpreters, such as lack of availability, and provide affordable options to expensive personalized interpreting services. Our findings indicate a range of preferences for integrating the AI avatars with actual human figures of both DHH and hearing communication partners. The participants highlighted the importance of having control over customizing the AI avatar, such as AI-generated signs, voices, facial expressions, and their synchronization for enhanced emotional display in communication. Based on our findings, we propose a suite of design recommendations that balance respecting sign language norms with adherence to hearing social norms. Our study offers insights into improving the authenticity of generative AI in scenarios involving specific and sometimes unfamiliar social norms.