It looks like the tug-of-war is at an end. After first releasing the 360 Live iPhone app for $1.99 and subsequently being lambasted by Microsoft, creator Xavier Larrea has released a free version on the iTunes App Store. As the app now complies with Microsoft's policy that all Xbox Live iPhone apps must be free, 360 Live should be here to stay. If you'd like to take it for a spin, it can be downloaded at the link below.
360 Live (Free):