The requirement for Live for Xenon makes sense (if you're Microsoft :-)). If I believe half of what I have read about the Xenon, it will have a trio of PowerPC CPU's, and a serious ATI graphics engine. Plus the usual sound, etc. Total cost will be fairly high, and since it is not built on top of standard components (X86) there are serious infrastructure costs as well.
As such, Microsoft will be looking for the Live revenue stream to make up the money they will lose in the console hardware. Realistically speaking, it will probably sell for $300 or so, which would be a LOT less than what it costs to make it. Since game revenue will come in slowly (with more build-up costs) it will make sense to them to require everything to be Live enabled, or provide basic functionality nonLive and full functionality Live.
I don't agree with the idea, but that's where the money is.
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