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I fail to see how anything you said disagrees with what I said. My point was that Microsoft probably make a larger profit off retail games than Arcade games. Also that they only want to pay for the storage and bandwidth of selling large games after they've been sold in stores (thus reducing the number of people who will want to download them).
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What I'm saying is that they haven't put anywhere near the amount of effort behind Games On Demand as they have on Arcade games. If this were the case they most likely would make a much bigger deal of it when the list is updated. Plus, GoD games are typically only five dollars more than a premium Arcade game, but cost a hell of a lot more to make. I realize that they have already made back their money at retail, but I'm telling you, Live Arcade is a cash cow for them.
I know that so far you've only really had experience with PSN, which has released some fine games, but it gets nothing like the support that Live Arcade does. They put a ton of resources into that service, and it pays off for them. There are plenty of games on Live Arcade that perform better than full retail releases.