The users in my community want the chat to be opened in a small window without all the control bars.
So I think a popup window without scroll bars, location bar, status bar and so on would be the best solution. Right?
<a href="#" onclick="openChat(); return false">Open chat</a>
<form><input type="submit" value="Close chat" onClick="window.close()"></form>
Your solution is good, but there are alternatives. You can create the window by your own, as some kind of layer. Then you need to implement lots of things but it gives you full control over window Look And Feel. Of course you can always use some scripts like jQuery UI Dialog.
In short, you can't control everything that the browser displays in a pop-up window. Most browsers keep the URL visible, for example. This page explains most of the details (though it is a couple years old).