The free app allows you to:
Read and send messages to Xbox 360 friends Manage your friends list, invite new friends, Read and Edit your full LIVE profile (name, bio, motto) Change your avatar features/items with the avatar closet View and compare your achievement progress with friends
I've spent a few minutes with the app, and so far it's very slick, featuring full 3D avatars and plenty of content, though it is a tad bit slow at times. The app has three categories: Home, Social and Games.
In Home you get access to a bunch of videos including some features and trailer, as well as some neat articles like the Gamer Spotlight and the poll, which you can actually vote on through the app.
Social is where you can see your friends, messages and even the recently added beacons, which lets you put out a call for friends to play games with. The friend's list lets you do everything you can do on your Xbox 360, aside from gaming with them of course. You can also edit your avatar in social.
Games lets you browse through the games you've played and check out the achievements you've unlocked and what is still locked. Tapping on an unlocked achievement brings you to a description floating above your dancing avatar.
It's great to see that Microsoft isn't limiting Xbox Live apps to their phone, now they just need to bring the rest of the Windows Phone features over.