The service, which has been up since November 2002, enabled online gameplay among Xbox consoles.

Xbox Live is, of course, still available for the current Xbox 360 console.

Microsoft’s spokesperson also provided a reminder to Xbox Live users thinking of modding their own consoles:

All consumers should know that piracy is illegal and that modifying their Xbox 360 console to play pirated discs violates the Xbox LIVE terms of use, will void their warranty and result in a ban from Xbox LIVE.

Although Microsoft has been especially active in banning consoles in the past week, the company also points out that its policy is ongoing, and Xbox 360 consoles found to be modded or playing pirated games may be banned at any time.

The sales of Xbox Live Arcade titles tripled during the week that the new Experience was released, with preference given to some of the Avatar-enabled titles.  Uno, which has been out for years, saw a 650% increase in downloads the day Avatar support was added.

For the week after the launch, movie downloads went up by 49% and TV show downloads went up 30%.  The New Xbox Experience brings these to the forefront, turning the Xbox 360 into a media hub. (Hey, we thought that was Sony’s thing…)

There are over 14 million users on Xbox Live.

Speaking with Kotaku, an Aaron Greenberg, an Xbox 360 product manager, says that he isn’t impressed with the service:

“What Home to me feels like is Second Life for hardcore gamers … It doesn’t feel like it broadens the experience and invites people in. When they unveiled it, it seemed innovative. I think what’s happened is now here we are a couple of years later and we feel beyond that … It feels like 2005 tech in 2008″

One of the biggest points that PlayStation Home tries to make is that it’s a free service, while Xbox Live Gold members have to pay in order to play their games online.  Greenberg insists, though, that no price drops are in Xbox Live’s near future, and that the cost of Live is justified by the service:

“I think we have seen people are willing to pay for the premium experience. When they compare Live, even to Home, there is still a huge gap.”

Greenberg also insists that Xbox Live is prepared for the holidays.  The service, which experienced difficulties last Christmas after an unexpected number of people went online, has reportedly been improved since.  “We are well prepared for the type of growth we expect this holiday,” says Greenberg.

The announcement comes the day before Microsoft releases its highly-anticipated Live Experience to Xbox 360 users.  The new system will improve interaction among players on the network, introduce player avatars and revitalize the Xbox 360′s interface.  Sony is probably hoping to dispel the common conception that its PSN is inferior to Xbox Live, which seems to be preferred by most regular gamers.

Microsoft is very excited about the new Live Experience, insisting that it represents that future of home entertainment content. “With the New Xbox Experience we will reach the next generation of Xbox owners, 25 million and beyond.” said Don Mattrick, senior VP at Microsoft. “We are at a watershed moment, backed by the largest entertainment brands, with an incredible line up of entertainment unmatched in any industry.”

As Mattrick indicated, Microsoft is approaching 25 million Xbox 360 consoles sold.  Compare that to 35 million sales for the Nintendo Wii, and 17 million for the PS3.  Although the Wii is reaching a wider audience, Microsoft is confident that it can maintain its lead over the PS3 indefinitely.

Needless to say, Microsoft has high hopes for its updates, but insists that the new Live Experience is just the beginning.  Xbox 360 players can judge for themselves tomorrow.  The new Xbox Live Experience update will begin downloading automatically on Wednesday when players sign into Xbox Live.

The new Live Experience system will offer a change to the Xbox 360‘s interface, as well as new customizable avatars similar to the Mii characters on the Nintendo Wii.

The Xbox Live Experience will also introduce a new party system, where Xbox Live Gold members can join together to more easily communicate online, as well as join games and stream Netflix movies.

Microsoft has previously stated that some of the design and interface changes will be optional.

Schappert said in his speech that Xbox Live now has 14 million members.

Undertow is a 3D underwater shooter game available on the Xbox Live Arcade. The game carries 3D graphics beyond that of most of the arcade titles available on Live, which consists of casual games available in the $10-15 price range.

The free game offering is officially a thank you to Xbox Live’s subscribers, but the game was originally promised as compensation for network troubles experienced by the Xbox Live service during the 2007 holiday season. Despite the offering, a small group of gamers has sued Microsoft for $5 million U.S. Because of this litigation, Microsoft has announced that it is unable to comment further on the downtime issue, or on the status of the Xbox Live network.