I've been on Xbox LIVE for the past 2-and-a-half years. I for one love the service. I have no issue paying for it, since $50 a year isn't that much at all (about $4.17 a month). The overall community isn't the greatest. We all know of the fucknuckle pissants that play Halo 3, Call of Duty, and Left 4 Dead.
here's a great example.
LIVE is great, but it's far from perfect. I'm sure there are hundreds of things that can be fixed. But I'm gonna focus on a few big issues that I think would make the service ten times better (HINT: they all involve matchmaking).
1. Separate the zones. My zone is recreation. Which means that I like to simply have fun playing online. I'm not a competitive player mainly cause I suck at vs. games. I would like to play with people with similar goals. I think if Microsoft separates servers by zone. it would (a) give zones more purpose. I'm sorry, but if your zone is "Pro" and your Gamerscore is under 2000, you're not Pro. And (b) it would improve matchmaking. If you're a competitive (Pro) player and want to play against other competitive players, jump into a random game and LIVE will take to a Pro server. If you don't take your gaming that seriously (a.k.a. recreation) and you want to just play with other players. you'll be in a Recreation server.
2. Have a way to sort out preferred and avoided players. I've played with some really cool people on LIVE (as rare as that may be). Afterward I'll give them a good review. But if I go to my list of player I've play with. There's no way to sort them out. And the players list only hold the last 50 (I think) people you've played with. I think if they kept you're preferred and avoided players. It would be easier to pick them out and invite them to a game without having to send a friend request/accept request/etc.
There are a few other fixes I can think of, but these are mainly on a game-to-game basis (more server-side options, etc). I think these changes would improve matchmaking by a lot. It wouldn't stop all of the matchmaking problems, there'll still be many of little Chocolate Milk fans out there. But anyway. Feel free to comment on how you think Microsoft can improve Xbox LIVE.