Why should people pay full price for a game after the development and marketing expenses have been more than covered? Why should they when there are a lot of games out there with a free to play system? Convince me that they shouldn't and you've convinced me noone should pay for Live.

Go in punishment behind the blackboard, I'd expect something better from you!    You perfectly know that paying for a game license or a fee for a publisher run game server is totally different from paying the publisher a fee for a distributed server purchased together with the game and actually run on the players' machines themselves. I wrote more than once that I don't object to pay full price (*) for licenses or publisher-run game servers and obviously they'll want a profit margin on them, I just don't want to pay for P2P multiplayer, unless I desire optional premium features. Obviously the optimal choice between P2P or publisher-run servers depends on the game and a flat fee to play every MMOG would be very favourable for a lot of gamers, but it isn't for gamers playing mostly P2P multiplayer. So, if I wasn't clear enough, I never meant that nobody should pay for Live Gold, I just don't find a honest deal to have to pay it if I'm only interested in P2P multiplayer, but I'd be more than glad to pay it if I liked fee-based MMOGs and Gold included one or more MMOGs I like, in that case it would be a very advantageous offer. But would third party fee-based MMOGs publishers find this deal advantageous?

Anyway, every deal is made by two complex parts, sellers with their products, costs and desired profits, buyers with their needs, tastes and desires, and the money they can and are willing to spend to satisfy them. Given the sellers' offers, buyers vote with their money, and XB360 market share and the part of them subscribing to Gold exactly reflect how the market accepts and likes MS model. And unless this model isn't forced on me too without any choice, I'm perfectly fine with people liking it and findinge the deal advantageous, I never wanted to demonstrate they shouldn't, it's actually only MS competitors' task to offer them a better deal, if they can.

(*) If full price is too much for me, I simply give up the advantage of playing the game when it's new and I wait for it to go budget, it's a honest deal, if I pay more I receive more and sooner, if I pay less, I'm served later (although often I actually receive more, a debugged game and some expansions included). I so love deep pocketed early adopters kindly indirectly financing saver gamers!   

Any service that relies on digital distribution is bad imo.

Yep. XBL is the superior choice for online gaming on consoles, if Sony or Nintendo was competent enough to develop such an integrated architecture for online gaming, then people would slowly stop paying for Live. It's not just "PSN doesn't have cross game voice chat lulz" or "PSN needs cloud saving to overtake Live", Live is so integrated that you feel like you're part of the Community, and I'm not even talking about mics in every box, what I'm talking about, for example, is the XBL marketplace and Avatars are much more integrated into the Live experience than PSN Store, Avatars and Home are integrated into the PSN experience.

I have to agree that if I played online I would play on the Xbox 360. I don't believe that even as a Steam user with 30 plus games that Steam is the superior service for playing multiplayer titles. I hate online however and I still prefer Live silver for the integration of the services and overall quality of the experience. I never buy PSN games simply because I know that every time I see an interesting looking Xbox Live game I can get the demo.

How is Steam going to work on PSN anyways? One unified account? Have to create a sub account to use Steam, a la Konami with MGS4 (poor solution IMO)? Will any of Steam's catalog games work on PS3 (highly unlikely)? Will new Steam games going forward work on PS3? I really see it as only having to create a sub account to be part of "the Steam awesomeness" and being more of a pain in the ass than anything else to be honest.

I remember hearing from a network engineer how expensive content delivery networks can be. I remember also Sony making some little announcment that they were finally breaking even on PSN even though their network is less complicated from what I understand. I don't remember when it was. The thing people fail to understand IMO is that peer 2 peer only removes one of the several major costs which are incurred when operating a network on the scale of Live. Furthermore theres the assumption that cost is the only major reason why games are peer to peer on Xbox Live. There have been several examples of games which could have had servers to play such as Halo 3 and according to bungie they specifically chose peer 2 peer gameplay because it also represented several advantages, especially in matchmaking flexibility. Beyond this they have a lot more ongoing manpower costs as they employ a significant number just to moderate and maintain Xbox Live.

So yes they probably could have free 2 play on Xbox Live. However to do that they would have had to significantly slow down the rollout of new back end and front end services. Beyond this given the extremely large capital investment to create the Live we see today they probably do deserve a return on their investment if they can get it. It is fair enough that others go other routes for their online gaming because they have different ideas and objectives in mind. I don't pay for Live, I probably won't for a long time maybe once the next generation starts but to me if I played online it would be the best service for it because when it comes to playing games I would rather play with Tru Skill and skill rankings to ensure my noob ass doesn't get splattered all over Texas by some 16 year old with too much gaming time on his hands.

This is a good question, and I'm interested in seeing the Steam integration as well.

I agree both that Steam is pretty cool and that consumer demand drives the price of services.  The reason the PS3 cost what it does today, is because not enough people were buying it at the price it was.  The reason the 360 will eventually drop in price again, is for the same reason, etc, etc.

Unfortunately, a crap-load of people ARE paying for Live even at it's current price, so it's unlikely to ever go free (me included....doh!).  In fact, I'd agree with others in this thread that this a revenue stream that neither Sony nor Nintendo will ignore for too long.

Sony should just contract Valve to work on their PSN and XMB along with Steam support as well and keep things free, that'd kick XBL in the balls really really hard.