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I don't think it'd make a huge difference as the current user-base has already accepted the pay to play model. It may increase sales slightly but I don't think it'd be significant unless MS advertised it heavily.

IMO Live should be free as other services like PSN and Steam manage to provide a quality service for free. You can argue that they're not as good as Live but in the end the only things that truly matter are which platform your friends are on. If you have friends on Live already then your going to be more willing to cough up the money to play online. But really MS could probably still maintain the quality even if it was free.