Xbox Live is an online gaming marketplace where subscribers can download new content, watch movies and play games with others from around the world. Connecting to this service requires the user to have a monthly subscription, as well as a high-speed Internet connection. Using your iPhone's 3G Internet connection can act as a basic connection to allow you access to Xbox Live if properly set up.
Turn on the iPhone and locate the Settings application on your home screen. If it is not on your primary home screen, slide your finger on the screen to the left or right and check in any folders that you may have created until you locate the application, which has an icon that looks like a set of gears.
Select the "General" tab in the settings menu on the left of the screen and tap the "Network" option. A new list of options should appear. At the bottom of this list, there should be an option titled "Personal Hotspot." If the operating system has not yet been updated to 4.3, it will be titled "Internet Tethering." Tap the icon to bring up the next menu.
Connect the USB cord to the iPhone and leave it unplugged from the computer. On the "Personal Hotspot" settings page, locate the "On/Off" slider at the top of the page and slide it to on. A box may pop up notifying you that you do not have Wi-Fi or Bluetooth turned on. Tap the "USB Only" button to enable the tethering feature and plug it into your laptop. The iPhone will begin to sync, and when done will allow an Internet connection.
Open your computer's networking centre. This can be done by clicking the icon of two computers in the lower right of the screen. Locate the iPhone from the list of available connections and click on it to connect.
Click on the "Start" menu button in the lower left corner of the screen and click "Control Panel." Scroll down until you see "Network and Sharing Center" and double-click on it. Look to the bar on the left, locate the option titled "Manage Network Connections" and click on it. On the new window that opens up, locate your iPhone from the connections list, and right-click on it. Click "Properties" to open up the connection options and click on the "Sharing" tab. Click the box next to the option labelled "Allow other network users to connect through this computer's Internet connection" and click the "OK" button at the bottom of the box.
Connect the Ethernet cable to the computer and the Xbox 360; test the Internet capabilities by visiting your browser's home page while using the phone's Internet connection.
Power on the Xbox 360 by holding down the large button in the middle of your Xbox 360 controller. The controller and Xbox 360 will both power on automatically.
Scroll using the controller to the section titled "My Xbox." Use the joystick to scroll all the way to the last option on the list, titled "System Settings." Select "Network Settings" from the list to bring up the available networks within range of the Xbox 360.
Scroll through the list of available networks until you find one titled "Wired Connection." Select it to open a new box, and select the "Test Xbox Live Connection" option. Allow the Xbox to run through the process, following the diagram at the bottom of the screen for the progress, as it may take a few minutes to test. Once this is done, the Xbox will be readily connected to Xbox Live.
Be careful as to how often you use your iPhone to tether to you Xbox. Watching movies and playing video games uses a great deal of bandwidth and can deplete your data allowance from the carrier very quickly.