MS has a different business model with Live than other online providers. They choose to charge customers a small fee for several reasons. One, is to recuperate the cost of running the huge infrastructure. Two, is to reinvest in said service. This is why Live has a constant supply of new features, XNA, NXE, etc. Microsoft also needs money to pay for content rights for movies, tv shows, music, etc, so subscriptions is another revenue stream to gather more content for the customers. I am more than willing to pay for something when the money will be used to add value to the service. Primetime is looking to be a good example. Fun and prizes.
Also, standardization is a great thing. All developers use the same Live API, so us customers know what we can expect.
And there have been many, many pay to play online services on pc in the past. It isn't like MS is the first to try pay to play. Just one of the first to succeed, mostly due to great service and value visibility.
Steam has been playing catch up to Live in terms of feature sets. Especially the ones someone mentioned above. It is free, that is about it. But that is very important to some people.
Personally, the party system and matchmaking alone make Live worth the money. One of the benefits of P2P online play. And in case someone doesn't know, there are still infrastructure costs to having P2P online play. Just not as much. Master servers and such.
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