A survey sent out by Microsoft hints at the possibility of a virtual Avatar arcade headed Xbox 360.
Sounding similar to PS3's Home arcade space, the survey asks, "Which of the following names would most compel you to purchase the product?: Game Room, RetroCade, Tower of ROM, and "Classics LIVE", among others.
With the wording "purchase the product" included in the survey, it sounds right to assume that the service will not be a free one.
We'll throw a line out to MS and see if anyone in Redmond bites.