To start off, I'd like to say that X-Box Live is amazing and worth every penny. Online gaming is incredibly fun and quite a good way to pass time.
That aside, there are downsides to X-Box Live that can be avoided through prepaid cards. Number one, you always run the risk that unwarranted transactions will be made if your credit card information is stored on your X-Box 360 system. It may not happen all that often, but it's best to avoid it all together.
The biggest reason to buy prepaid Xbox Live card is the renewal process that happens when you don't use one. If you order X-Box Live through your system, it'll renew every time your subscription runs out. This wouldn't be a problem except that it's not that easy to cancel. Instead of canceling through your system, you have to go through the hassle of actually calling X-Box Live support. Even then, depending on the representative you get, you may be hassled to keep your subscription because they really don't want you to cancel it. I'm guessing that's part of their job to convince you to keep it, but it still is frustrating to the person that is trying to cancel it.
You'll have to go through this process every time you want to cancel if you don't use a prepaid card. Is that hassle really worth it? I don't think so. Therefore, avoid all of the problems by simply buying a prepaid card. You won't be sorry.
UPDATE: (3/6/2011): I updated this review about a year ago pointing out that you could disable the subscription on X-Box Live's website. As of this update, they've taken that feature away again. I'm guessing Microsoft must have seen a major increase on people who canceled their subscription, thus now forcing you to call their customer service hot-line again to cancel. Even if they add it back, just save yourself the hassle and get a prepaid card. You never have to worry about dealing with customer service that will try their hardest to get you to stay on as a recurring customer. Amazon also gives great deals throughout the year. You could save yourself $20 to $30 sometimes just by checking to see if Amazon has these prepaid cards on sale. What's not to love about that?
