After many years of partial integration, a free May 2007 update to Xbox Live will enable two-way instant messaging between Xbox Live gamers and Windows Live (formerly MSN) Messenger users on PCs or mobile phones. Microsoft will also release a USB thumb keyboard specifically designed for text messaging on Xbox Live, although other USB keyboards will work. The move shows how Microsoft could use its MSN and Windows Live services to stay ahead of console competitors Sony and Nintendo, which don't have comparable online services.

Microsoft has dabbled with integrating these services before: in 2004 it introduced Xbox Live Alerts, which allowed gamers to send game notifications to MSN Messenger users on their PCs or phones, but this service was discontinued when the Xbox 360 was released. Also in 2004, Microsoft added an Xbox Live tab to the MSN Messenger client in some geographies, allowing Messenger users to check their Xbox Live friends list to see if they were online and playing a game. This function was disabled prior to the release of Xbox 360 and reappeared only in June 2006.

The May 2007 update greatly expands the integration between the services: Xbox Live members will be able to conduct text chats with up to six Messenger contacts at a time from within the Xbox Live dashboard or any game. However, the Messenger contacts list and Xbox Live friends list have not been consolidated—rather, an Xbox Live user must associate his Xbox Live Gamertag ID with a Windows Live (Passport) ID to use this feature. (Xbox Live prompts users to make this association when they first sign up for the service.)

Users will be able to connect a USB keyboard to the console to type messages, although Microsoft doesn't guarantee that all keyboards will be supported. Microsoft will release a miniature thumb-keyboard in the style of other Xbox 360 controllers in summer 2007. (Pricing hasn't been announced.)

The May 2007 update will offer other enhancements to the Xbox Live service, such as the following:

• A Marketplace "blade" (top-level Xbox screen) will join the other four blades—Xbox Live, Games, Media, and System—giving gamers easier access to downloadable game and multimedia content in the Xbox Live Marketplace (previously, the Marketplace was a lower-level menu item in the Xbox Live blade)
• Progressive video downloads—that is, videos that users watch as they're being downloaded—now have fast-forward, rewind, pause, and resume controls
• Users can configure the Xbox 360 to download movies overnight and shut down when the downloads are complete—useful for high-definition movies, which may take several hours to download.