The official website for Microsoft's Xbox 360 has just updated the current status of Xbox LIVE, showing a "Service Alert" message regarding several aspects of the service, including Xbox LIVE itself.
At this time of writing, the alert message is stating that users may not be able to connect to Xbox LIVE via an Xbox 360, purchase items from the LIVE Marketplace with a credit card or by using Microsoft Points, and also encounter difficulties redeeming codes.
Currently, I am unable to sign in to my Xbox LIVE account. Several minutes ago, when I was signed in, I would get disconnected from LIVE every time I loaded up a game. On Bad Company 2, for instance, I would get a "Disconnected from Xbox LIVE" message every time the DICE logo appeared. Upon returning to the Dashboard I would be signed back in.
Let us know if you're able to access Xbox LIVE by posting a comment below. We will continue following the situation and update you the moment more developments arise.
UPDATE: Xbox LIVE is no longer in Service Alert, and it's been reported that the downtime was due to Microsoft slowly implementing their recently announced cloud storage system for the service. Some LIVE Arcade games are now able to take advantage of the cloud, it's also been reported, with more updates expected soon. We've also contacted Microsoft for comment, and will update this space when or if we hear back. The original story is above.