Well the GM of Xbox Live has come out and stated the problems folks have seen on Xbox Live have been related to the mass of new users coming online over the holiday.  The Windows Live authentication service is used by the Zune as well as the Xbox 360.  So it seems Microsoft is saying that since so many new users were signing up for the services their network was not able to handle the load.  They did have their single highest day of concurrent users over the holiday plus their single largest sign up for the Xbox Live service.

Another rumor that had been going around was that Microsoft was under a denial of service attack.  That seems to be just a rumor as it has not been officially announced by Microsoft.  Still, Microsoft is taking the blame for the issue and plans to reward their members by offering a free Arcade game to all users.  Since there are about 8 million users out there that's a nice offer to make considering Live was never actually totally down. 

www.majornelson.com/archive/2008/01/03/xbox-live-holiday-performance.aspx
http://kotaku.com/340354/xbox-live-downtime-due-to-service-attack