I'm very impressed by the XBox 360 top-level UI. It is now the primary channel for me to consume Netflix. That honor belonged to my Mac Mini controlled via iPad until recently. That said, there are some deep problems:

1) Charging for XBox live Gold is annoying from a customer's perspectively. I only got XBOX live Gold recently because they were giving away 5 free games. I doubt the better UX of netflix is sufficient to get me to pay for this service.

2) Content pricing The cost of movies/tv shows on Xbox live is pretty steep. I'd rather drive to my local redbox to get the latest movies. If they charged 2-3 dollars for 24 hour rental (a 100-200% higher cost than redbox, I'd use them for sure).