Microsoft has decided that if you want to make an Xbox Live app for the iPhone, you will have to give it away for free.
The coders behind the 1337pwn Friends List were contacted by Microsoft and were told they could keep their app on the App Store — but only by reducing the price to Zero.
We have looked at a similar previously, and were fairly unimpressed, so perhaps this is a quality-verus-branding issue for Microsoft and they just don't want people to be charged for limited functionality.
It is just possible, though, that this is merely leading up to the announcement of an official Live Anywhere iPhone app. Oh, and the Zune, obviously. We wouldn't want to forget the Zune.
Microsoft: iPhone Xbox Live Apps Must Be Free [Wired Game|Life]