Live is MS "thing". It's what they were counting on this gen. It's unique and separates it from the other consoles. Otherwise it would just have games and not appeal to devs.
Hopefully by next gen this would have shown devs that Xbox is a console to make games for. We have already seen that happen with FF13 now coming to 360.
I'm trying to think what more do I want from Xbox Live and tbh Sony actually have it. I want to download and keep movies and move them to devices. Fair enough the main service seems to be a complete rip OS wise but they have something I want.
MS are a software company. It's what they do best. They will try to keep on top. When the generation of downloadable games comes (Steam basically) to consoles, then we will see a new battle.
As for the constant "dedicated servers" talk. Do you guys really get lag that often? I mean I play a lot of FPS games. Halo 3, COD4... and I don't get lag. Dedicated servers do offer other things like what MAG is doing. But for me it's not something I need yet.