It seem there is a problem signing into live that has been sporadicly causing problems the past week.  Now I've been able to get online and playing games no problem but have had issues signing in on the dashboard and signing into Zune marketplace.  It seems there have been some account recovery issues as well.

Now no matter how annoying this whole process can be it's a sign of growing pains.  We don't know just yet how many Zunes and Xbox 360s were sold this holiday season but it seems enough to really bring Microsoft's network to it's knees.  I was eventually able to get signed in late last night.  Hopefully they will have everything resolved and going froward there will be no more issues.

Source:
kotaku.com/339051/xbox-live-is-very-sick-needs-a-lie-down
http://www.majornelson.com/archive/2007/12/29/xbox-live-status-12-29.aspx