By polished, I mean it's centralized and smooth. All (except EA games) games run through MS servers, so quality control is easier handled, which means less lag. You pick one screen name, which they call your gamertag, and it's the same for any game. I remember PS2 having to pick a new name for each game.
When you log in, you go to what they call the dashboard. You have a "friends list" that shows you when one of your friends logs in to Live to play, no matter what game they're playing. If I'm playing Madden and you log in to play Call of Duty, I can send you a game/chat invite across the different games. With PS2, my only way to communicate with you is if we happen to be playing the same game. They intend to upgrade Live features approx. every 6 months. The first update was back in the spring and most of the new features were things requested by the user community.
You can text message and voice chat back and forth with your friends, no matter if you are playing the same game. In Sept., they are selling a cheap ($40) USB camera that will enable video chat over Live. They offer downloadable content such as game add-ons (WARNING - greedy MS tries to charge you for a lot of that stuff), game and movie trailers, and game demos. They've even started offering tv show content for download, the first of which is a 45 minute preview show for the new season of Battlestar Galatica.
My favorite part of Live is probably the Live Arcade. They offer small, downloadable classic, retro, and all new games that are downloaded and saved on the xbox. The trial versions are free and the full versions are $5-$12. I've bought Gauntlet, Pac Man, poker, and a few original titles. They're supposed to have ~70 Arcade titles available by the end of the year.
Microsoft's greed occasionally shows through with things like the map packs, etc. they charge you for, but their Live service is a good product and easily worth the money to me. So good, that Sony's new PS3 online model is supposed to mirror its features almost exactly. They say imitation is the sincerest form of flattery.