You do these things, we will pay you.  None of those things are illegal thus not a problem.  

There are paid advertisers everywhere.  In blogs, forums, "sites that claim to have  integrity" etc.  If I needed the money, I might sell my integrity also.  

For the record I am not a fan of false advertising (which this is).  

This post has new info: for one participants in this contract can't say that they've been paid to promote the Xbox.

Not mentioned in the OP (but mentioned in the article he linked) is that this might be illegal as it breaches the Federal Trade Commission's (FTC)  guidelines for endorsements- namely that there needs to be full disclosure that payment was made to promote the product.

I don't believe it is Illegal, unethical yes, but illegal I don't think so. Also yes, I blame the people who agree, not the devil that offers the deal. 

It's completely different from an ad. You know immediately that an add is paid for ... because it's an ad. Why would Pepsi make a Coka-cola advert? This is bribing Youtubers to lie about the X1 and keep it quiet.

I know it isn't illegal by the way, I just commented above mine, stating it isn't. Correct, and that is why reviewers and sites are becoming less credible and a lot of people question the integrity of number of sites. Youtube is just the next stage. Again I blame the youtubers, not the company. If you were allowed to disclose you are doing this, I wouldn't find any fault in it. 

OP is missing the bit that actually makes this news worthy: The arrangement as described might go against the FTC's guidelines for the use of endorsements in advertising, which demand full disclosure when there is "a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement."

From ArsTechhnica

Cinemablend has the best coverage of the story by far: http://www.cinemablend.com/games/Microsoft-Machinima-Xbox-One-YouTube-Promotion-May-Unlawful-According-FTC-Guidelines-61735.html

I really suggest seing their version.

Lol, meanwhile MS told everyone they can't monetize their gameplay recordings of Halo 4.

Ubisoft went out its way to support youtubers to upload their gameplays on any Ubisoft game without such a restriction.

It's against the law to promote something without disclosing that you are being paid to do so. Why do you think that Sessler always has to tell us who has sponsored his videos? It was posted above for you:

"The arrangement as described might go against the FTC's guidelines for the use of endorsements in advertising, which demand full disclosure when there is "a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement." The document offers a specific example of a video game blogger who gets a free game system that he later talks about on his blog. That blogger would need to disclose that gift, the FTC says, because his opinion is "disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious." That same reasoning would seem to apply to the opinions expressed by the video makers participating in this promotion."

No not like and ad. And ad requires you to put a disclaimer at the bottom  indicating the person giving the "opinion" has been compensated.  Happens literally on every infomercial. 

Microsoft here is specifically doing the opposite, telling people to lie and hide the fact they've been paid. This is regulated and fined by the FTC. 

You're allowed to have sponsors and promotions, and paid reviewers etc, what you can't do is do it under the table and pretend is not happening.

To those siting the FTC, how strong is the FTC in internet domain like youtube? Namely with the internet sometimes having many loopholes like different countries and different methods.