Typically on the web, if a service or app is free then you can assume that you are probably going to be seeing ads because you as the user are in fact what's being sold.

The Xbox 360 from Microsoft has been a very successful video game console. In order to have access to certain other features, primarily related to online activities such as playing games against friends, you have to purchase a Xbox Live subscription on top of the purchase price of the console.

Which is where the ugly details come in.

People who don’t play video games would be forgiven if they turned on an Xbox 360 and didn’t realize it was a device used to primarily play games. The first screen you see on the Xbox 360 Dashboard is often a mixture of ads for all sorts of goods and services, and many times games are in the minority of ad slots. The latest redesign increased the ad space that can be sold to advertisers, and that in turn increased this problem.

And it doesn't sound like it's going to go away anytime soon since they're making so much money.

Read the rest of the article from The Penny Arcade Report, Ads up, games down: The ugly, profitable details about Xbox Live advertising.