All those people advising the devs to make XBLA games need to listen to common sense, not MS reps.
First of all, there is a size restraint on XBLA games, a reasonably limiting one I believe
Second, If you're aiming at the casuals, XBLA release is ludicrous. Arcade model doesn't have a harddrive, and many casual gamers would not buy downloadable games.
Anyway, only a rumour at this point