Xbox Live’s downtime around Christmas was due to server strain, with an unexpectedly large number of people (10 million) trying to sign up and play online. Microsoft simply wasn’t prepared for that number of people using the Live servers, hence its shoddy performance, and subsequent free Live Arcade game. Microsot also says that, when the servers were misbehaving on Christmas day, it was difficult to contact its staff, for reasons you might expect.
Maybe it’s my terrible Internet connection, but I still think XBL is a little slow: signing on is nowhere near instant. I tried to play Call of Duty 4 two nights ago online and just logging into XBL from the Dashboard took a long time, maybe one to two minutes.