Needs more original games, and the expense is to great...
For starters, the games are rarely originals. Alot of them are just remakes of older games, and whilst thats not all bad, there are plenty of different versions of those games online for free. There are a few good ones, Hexic and Uno to name the two best, but not enough to keep me going.
Secondly, is the cost. It's just to much for a single game I won't get much use from. Microsoft has to lowers the prices to get the best from Arcade. Hexic does come with the 360 for free though. It would also be nice for some more online multi-player games, to my knowledge Uno is the only one. It's a great idea, and the interface is good, nice quick downloads, but it has a long way to go.