You'll remember that when Instant Watch first launched on Xbox 360 there was a licensing issue that blocked Sony's Columbia Pictures content, though this was eventually resolved. We've reached out to Netlfix and Microsoft for comment on the current issue. Now, if you'll excuse us, we've got to find an alternate use for all this popcorn we'd planned to toss about our living room.
Update: A Microsoft spokesperson had this to say: "We are working closely with our partners and studios to deliver Xbox Live Parties for as much content as possible. We offered the Xbox Live Party feature to all content owners, and what's up on the service reflects what the rights holders are comfortable with. We're confident that the community will be pleased with the great selection of Party-enabled content."
Additionally, a Netflix spokesperson further clarified, "We're working with Microsoft and the studios to instantly stream as many movies and TV episodes as possible for Xbox Live parties. Certain content providers don't provide rights for their content to be instantly watched in party mode. We're confident that the community will be pleased with the broad selection of movies and TV episodes that are available to instantly watch in party mode."