Microsoft has added support for Bitcoin based funding of your live account. You can use the funds to buy Xbox games, apps, software and other digital content from Microsoft.
This is what it says on Microsoft’s help page:
You can now use Bitcoin to add money to your Microsoft account. Once you add money to your Microsoft account, you can use it as a payment option to buy apps, games, and other digital content from Windows, Windows Phone, Xbox Games, Xbox Music, or Xbox Video stores.
People are reporting that Microsoft is processing payments via BitPay.
Unfortunately this is US only at the moment but it is HUGE news for Bitcoin nevertheless!