Can you explain a little bit more about the background of the new 1st party studio?

Well the main idea behind the concept is to invest deeply in developing original content that will be compelling and exclusive to Xbox LIVE.   This is a place where we’ve redoubled our commitment and I’m putting both dollars and people behind new games that push the quality and the bounds of the system.  Wish I could share more today, but definitely stay tuned on this, as we have some very exciting things in the works including some big original XBLA games we will be announcing soon.

Regarding the file size extension, that's a sizable increase, and the second such increase we've seen in XBLA. Why the change, and why keep any sort of restriction in this regard?

The success of the business and the boom in this new economy of digital distribution has required us to re-look at the business and allow room for growth in the future.  We have heard from some of our developers that if they had as much as 350mb of space they could create some really amazing games.  So we don’t want anything to hold these guys back.  We will also have dedicated resources working closely with the development community to find the best content and make sure it gets the time and polish it needs to shine on our service.  But we still think it is important to have some limit and be clear that Xbox LIVE Arcade titles are made to be smaller in size than retail games, quick to download and will continue to deliver on the fun pick-up and play experience that people are used to.  

Last year Xbox 360 owners got a spring dashboard update in early May. It's now late May and you still haven't announced anything regarding this year's update. Should 360 owners be holding their breath for it?

We have taken a different approach this spring and spent a lot of our time and resources of building the proper infrastructure and scale for the service not just today but also into the future. So while most users will not notice any significant changes to the dashboard this spring, I can tell you that the team will be releasing a new digital rights management (DRM) tool next month that will allow you to better consolidate your licenses for downloaded content to a single Xbox and allow you the freedom to be able to play your content both online and offline.  
 
There have been some high profile complaints on the web about how difficult it is to transfer things like XBLA game licenses to replacement 360s in the wake of an under warranty hardware failure. Would these changes to DRM policy address these issues, letting people who have experienced such failure re-license their purchases on their new Xbox so they don't have to be connected to Live to play? Are there any other sorts of changes to DRM policy being made here that would affect the end-user experience?

Yes, this new tool will officially launch next month on Xbox.com and will allow you to be able to consolidate these licenses onto one box so you can access things like Xbox LIVE Arcade games and TV show you have downloaded even if you are not online.  Because this involved allowing users to re-download licenses for content that belongs to our partners it has taken some time to work out the agreements with them to allow this, but we have heard the concerns from folks about DRM and are happy to announce that everything is nearly in place to roll this out in June.