Xbox Live Marketplace will launch with 400 downloads on 22 November, although none of the initial games is expected to be a big-selling title. Those listed so far include Bejeweled and Zuma, as well as backgammon and card games.
Microsoft claimed that the online store could be used to sell full console games but that leading publishers have not yet decided to take up this option.
The software giant will also launch its own e-money system, known as Microsoft Points. Cards will be sold for £13 containing 1,600 points which can be used online to pay for games ranging from 150 to 800 points.
Ian Fogg, broadband and VoIP analyst at Jupiter Research, said: "ISPs will want to know how they can benefit from this because they are seeing declining revenue from broadband and they are very interested in how they can monetise content like games and videos.
"My other thought is will Microsoft's download service be available to basic Xbox users?"
Microsoft, however, seems most keen to ensure that the service will not " disrupt" the retail channel.
Aaron Greenberg, marketing manager for Xbox Live, told the Financial Times: "Our arcade will deal with smaller games; we are not disrupting the retail channel."
The subscription-based Xbox Live service currently has two million members who play each other over the internet.
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And becomes the team's executive chairman to boot