The New Xbox Experience features a host of upgrades, including a new interface that will replace the “Blades” system, party chat for up to seven people, the ability to save games to the hard drive for faster load times and quieter operation, customizable avatars, improved resolution support, and Netflix streaming.
The update is free for all so there's absolutely no reason not to grab it. Even those without an internet connection will have the option of either burning the update to CD from a PC or upgrading the next time they buy a game which contains the new firmware. Not enough storage space? Microsoft has a couple of solutions for you as well.
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