Some of the features include:

MSN messenger integration
Live Alerts- to let you know when friends sign into live
Previously announced by us - live arcade classics
Voice chat and more...

In addition, the following games are announced to be released for live:

Full Spectrum Warrior (June 2004)
MLB SlugFest: Loaded (June 21, 2004)
ESPN NFL 2K5 (August 2004)
NCAA Football 2005 (July 2004)
Madden NFL 2005 (August 2004)
Rainbow Six Black Arrow (August 2004)
NASCAR 2005: Chase for the Cup (August 2004)
NHL 2005 (September 2004)
Mortal Kombat: Deception (October 2004)
NBA LIVE 2005 (October 2004)
FIFA Soccer 2005 (October 2004)
Star Wars Battlefront (September 21, 2004)
Burnout3: TakedownTM (September 2004)
Tiger Woods PGA TOUR 2005 (September 2004)
Outrun 2 ( October 2004)
NCAA March Madness 2005 (November 2004)
ESPN College Hoops 2K5 (Nov 2004)
ESPN NHL 2K5 (November 2004)
ESPN NBA 2K5 (November 2004)
Unreal Championship 2 (Holiday 2004)
Halo 2 (November 9, 2004)
GoldenEye: Rogue Agent (Fall 2004)
Need for Speed Underground 2 (Fall 2004)
Forza (Winter 2004)
Call of Duty (Q4 2004)
MechAssault 2 (January 2005)
Doom 3 (When its done)

Yet another way for M$ to leech money from it's subscribers. It wouldn't surprise me to hear that by the time X3 is out that it is merely a portal to join the subscription based live arena where all the games will be served.