
Well, these aren't rumors anymore. At UC Berkely the other day, Bill Gates confirmed such a feature saying that he was most proud of the ability to assemble online audiences. This doesn't mean that Xbox LIVE TV will make it into the current Xbox, but it seems likely to be a feature on the Xbox Next (Xbox 2).
I see where Bill is going with this. Online gaming is, supposedly, the future of gaming. Professional gamers are becoming not only more recognizable but more accepted as a legitimate facet of the gaming industry. LAN parties are popular and games like "Halo 2" will get more and more people playing on Xbox LIVE.
I can see a future where you will "tune in" to watch a highly touted "Halo 2" match between some of the world's best players. Not only would thousands of people be watching, but Bill could serve up some pretty targeted advertisements to viewers. I think Bill is thinking about the potential reach, advertising or information-wise, of such a feature.
Add in some interactivity on the part of the viewer, say, for example a Roman Coliseum-esque "thumbs up" or "thumbs down" after a match to decide if the "gladiator" will die or be spared: Press "Y" to save the gladiator, press "B" if you want him dead. The online vote would be tallied and whamo-bammo, results.
The possibilities are endless. What matters is getting that audience to begin with. And, I think that's where Bill is focused right now. "Halo 2" should definitely help.