come on guys, Live is obviously the better sevice.
First of all, @Taz you like how playstation is organized on the XMB better than xbox's organization? You do realize that the only difference between the 2 is horizontal versus vertical right?
as far as features, live has way more. cross game chat (with up to 8 people parties) is huge, probably the biggest difference. It also has netflix (soon to be combined with video parties where you and your firends can stream the same movie at the same time), 1vs 100, demo's for every game, way quicker updates, built in msn messenger so you can communcate with friends on their computers, easy invite options for friends.
The ps3 does pretty well being free, they have home and text chat support. They also have limited friends list options, but nothing close to being on par with xbox live.
As far as content goes, they aren't anywhere close to each other. XBLA has a HUGE amount of content to choose from with some pretty spectacular games. People have already talked about different titles, so I won't mention particulars. There are also all the xbox originals, that have great games like halo 1 &2, jade empire, dreamfall, indigo prophecy, and more. Plus, every game has demo's and screenshots available so you can tell if you will like it before you buy it.
PSN is doing better, but again, nothing near LIve. They have some awesome titles, and percentage wise, there is a higher percentage of better quality titles, but that doesn't change the fact that there are more good titles on Live.
Basically, PSN is an awesome service for free. I use it all the time. I just don't ever see it ever being on par with Live. It's free, which means they will never have the financial backing that Live has to upgrade on a consitent basis.