If you don't realize why this is bad, I probably can't convey it to you in just a few sentences. If you do realize why this is bad, but haven't donated to the EFF lately, let me provide this handy link.
While the XBox Live focus is mostly a creation of the gaming media (the proposal would affect all online communication equally), it will be interesting to see how the gaming community responds.
Read - Gamers.com [via DesignTechnica]
Read - Electronic Frontier Foundation