The next Xbox 360 update will finally officially kill Microsoft Points dead. All your points will be converted over to an amount of currency equal to or greater than your points. Any Microsoft Points Cards will still be valid too (and transferred to real dollars). [Microsoft]
Microsoft points are the digital currency you use to buy Xbox and Zune content, and you can buy cards that are pre-loaded with points to enter in to your account. Problem? Just like with the iTunes gift cards, somebody discovered the algorithm Microsoft uses to generate valid codes, and loosed it onto the internet.