It's rather a subtle thing. In some countries with reasonably strong advertising standards there might be issues. It's all about the impression the ad makes in the target audience. The add seems to be targetted at young women, what with the "lead actor" being a woman, and the LIVE features being promoted as being of particular interest to women. The key question (which I don't know the answer to because I haven't a clue about what's free and what's not on XBL) is: are the services being advertised in close association with the "Connect for free" statement available for the non-subscription paying XBL user?
If the answer is yes then the ad is OK. If the answer is no then the ad would probably be open to complaint in countries where there are advertising standards with a robust complaints mechanism, and it is likely the complaint would be upheld. However unless it was a particularly aggrieved consumer who bought an XBox 360 under false pretenses any complaint would be rather petty in my view.
But consider this conversation between Noob who bought a PS3 and Noob who is thinking about buying a console:
Noob: I'm thinking of buying a console, and I'm leaning towards a Xbox 360 because it's cheap, and that online stuff looks pretty neat.
PS3 Noob: Get a PS3, the PSN is free, well you gotta pay to download games of course. But I heard the XBox online stuff you gotta pay a subscruiption or something.
Noob: But I just saw an add saying the Xbox live connection was free.
PS3 Noob: Oh, I guess they must have changed things then. Oh well never mind. I wonder if we can still play games with each other if you get an Xbox 360.
Noob: Dunno, I would have thought we should be able to if we are playing the same game. I'll have to ask the people at the store when I buy it.
PS3 Noob: yeah, cool. I hope we can, it would be so neat.
“The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.” - Bertrand Russell
"When the power of love overcomes the love of power, the world will know peace."
Jimi Hendrix