From the announcement on the Gamerscore blog entitled Windows Live Messenger Comes to Xbox LIVE, Uniting Friends and Families on the TV, PC and Mobile Phone we learn

Beginning May 9th, Xbox LIVE, the most interactive gaming and social network available, is once again expanding with the arrival of Windows Live Messenger on Xbox 360. This new feature, available as part of the Xbox 360 Spring Update, will connect people across Xbox 360 consoles, Windows PCs and Windows Mobile devices. Xbox LIVE members will be able to socialize with people on their unified friends list, including their contacts from the more than 260 million Windows Live Messengers across the world. With Instant Messenger, Xbox LIVE members will have the ability to:

• Chat via instant messenger with up to 20 contacts in a single conversation, and have up to six different conversations at the same time with people on PCs, mobile phones and other Xbox 360 consoles.
• Instant message while playing games, listening to music or watching movies or TV shows downloaded from Xbox LIVE Marketplace.
• View at a glance if friends on Windows Live Messenger have gamertags and add them to a unified friends list.

Folks on my team have been working on this integration for a while and I was even roped in a couple of times. I'm glad to see it finally in the hands of our users. This is a nice bit of synergy from Windows Live and XBox Live.

After I blogged about this announcement the first time around, Andrew who is both an XBox Live and Windows Live messenger user voiced some privacy concerns in his post One of my Many Irrational fears... where he wrote

My problem with the new Spring update for the XBox 360 lies in the Windows Live Messenger integration. It's been commented elsewhere that your contacts will be able to see what games you're playing, your gamertag, etc.

Well I have people, parent, family, whatever that I do not want seeing what I am playing at any one point in the day - this is why I didn't enable the ability to show what I was listening to on my Windows Media Player when that became available.

In fact, I quite like the thought that I can do whatever the hell I want in my leisure time without everyone being notified of it.
...
In fact you will find a comment from me regarding my displeasure on this on Dare's blog (no response), I did post it to Ozymandias' blog (disappeared), and Gamerscoreblog (no response).

These are three of the more accessible blogs from people who are involved in this decision and none of them has decided it was worth responding to my questions. Specifically I do ask if there will be an opt out - something that the Live Messenger team gave people in regards to Windows Spaces - as Dare mentioned.

Andrew has raised a valid concern and immediately after I saw his post I talked to the PM who worked on the feature to see if there was a way to opt out of the feature. I got the answer and I've been waiting until the Spring XBox Live update was out before talking about it in detail. Now that it is out, I can address how to opt out of this feature if you have privacy concerns about it: 

The feature is enabled by default once you opt-in to link your .NET Passport account/Windows Live ID with your XBox Live account. To disable the feature after you have linked your IDs, you need to turn off the option to automatically sign-in to Messenger when logged into XBox Live. The steps to do this from XBox Live are

1. click on profile
2. click on 'auto sign in'
3. there is an xbox and a messenger section. Click disable on the messenger option

Voila, and that's it. Your leisure time privacy is preserved.