The 1337pwn XBOX Live Friends Application allows iPhone users to check the online status of their Xbox Live friends, as well as send them messages and find out what game they are playing.  The application even allows for integration with Twitter and Google Maps location information.  While the application was reasonably prices at under $10 USD, Microsoft was not pleased.  Microsoft demanded that the application be offered for free:

“Microsoft is halting the sale of any XBOX Live-related applications in the iTunes AppStore.” Apparently, Redmond isn’t happy to see developers build applications that make its platform and services easier to use and more appealing to a broader range of users. Fancy that.  

Link: Microsoft demands Xbox LIVE iPhone app to be set free

Microsoft has had more than two years to come out with some sort of web app for Xbox Live, but it has not been on their list of priorities.  Someone else decided to use the available web data and create a program (claimed to be created from scratch, using the iPhone SDK) and make a little money in the process.  It seems that Microsoft will let them distribute the program, but at a much less price than the developer had hoped for, free.

What do you think, was this a smart move on Microsoft, or something that they should have overlooked?

Comments welcome.