Talking with Gamasutra, they mention that their biggest problem with the Arcade is the fact that Microsoft has too much control over what gets published and what doesn't. An issue that they claim has led to hundreds of craptacular games saturating the service. Burns goes on to say that "the real problem, I think, is that the same people who are deciding what retail games get greenlit are deciding what Live Arcade games get greenlit" and that it's "those decisions that are ruining Live Arcade."
To an extent, we have to agree with our N+ creators. It does sometimes feel either crappy retro games or crappy classics make it to the XBLA while we know full well other Indy games have more potential. That said, smaller developers are still a driving force behind the XBLA, with games like Castle Crashers, Dishwasher: The Dead Samurai and Schizoid leading the way. Also, we can't completely blame Microsoft for favoring big publishers, because, as we all know, they are rolling out a community fueled XNA service this Fall.