The long-awaited (for Xbox fans, anyway) system overhaul for the Xbox 360, known as the New Xbox Experience, was rolled out this morning. The NXE is a completely new interface for the 360, and along with the eye candy brings some cool new features to Microsoft’s venerable gaming platform. More significant than the changes themselves, I think, is the fact that such a complete system upgrade is possible — it’s almost like getting a new system without paying a dime or lifting a finger. No one has ever done such a complete revamp of a large installed base of “set top boxes”, which are generally considered static devices once they roll off the factory.

Let’s take a look at the major improvements in the NXE.

Interface

I’ve always felt that the previous Xbox 360 “blade” interface, while visually interesting in certain respects, lacked quite a bit in the user interface department. It was kind of clunky feeling, and there were times I wasn’t sure what I could click on (or how to get the cursor there) and what I couldn’t. So the first and most obvious improvement in the NXE is the look and feel. It’s slicker, more open feeling, and more modern, bringing it in line with the PS3 interface. It also seems a bit snappier when transitioning from screen to screen — although some interface niggles remain. For example, it takes way too many clicks to delete a game (and I download a lot of trial games, so I am frequently deleting things). However, on the whole it is a very welcome improvement, and makes navigating the dashboard a much more pleasant experience.

Avatars

The other biggest visual change in the NXE is the introduction of Xbox Avatars, which resemble the Nintendo Miis. Rather than a boring, static gamer icon (of which there was an extremely limited selection), you now can customize a virtual person to your liking with a vast array of chins, eyes, body shapes, hair styles, clothing, glasses, makeup, earrings, and more. A snapshot of your avatar can then be your gamer icon. I thought avatars would be a stupid gimmick, but they’re actually kind of fun. More significant is the utilization of the avatars in the NXE interface to form gamer parties.

Party system

The party system abstracts the group gaming management away from the games themselves. In the old system if you and some friends were all playing Halo, for example, and then wanted to play Gears of War, you’d have to all find each other again in Gears — maybe send out invitations and all that. But with the NXE’s party system, you group up once in the dashboard area and then the party leader can take everyone around to different games. If some members of the party want to play different games, though, they can still all chat through their headsets, even though they’re not in the same game.

Netflix

At long last, you can tie your Xbox 360 to your Netflix account and watch streaming movies (in HD, no less!) at no additional charge (provided you have the Xbox Live Gold membership and a Netflix membership). I watched part of The Sum of All Fears while writing this, and the quality is pretty good. I’m on a 10MB cable connection (it will adjust automatically for the highest video quality you can handle), and it’s definitely at least standard DVD quality. I’m disappointed that there’s only stereo sound (no 5.1), and you can spot some compression artifacts in certain scenes if you look really hard, but for us the experience should suffice for all but the most intense action movies.

One big wrinkle in the Xbox/Netflix streaming system is that Sony, in typical petulant Sony fashion, has blocked the streaming of all Columbia Pictures (owned by Sony) movies to the Xbox 360. All those movies can still be viewed on your computer or any other Netflix streaming device, just not the 360. Once again, Sony…great work.

Installing games to the hard drive

With the NXE, you can now install games to the Xbox’s hard drive. Sadly, you still have to insert the disk to play — in order to prevent piracy — but in many cases load times will be reduced. However, I’m more annoyed by having to swap discs than I am by a few seconds of load time. I wish there was a way for them to take care of that — maybe ask for the disk once every two weeks? Or once every 10 plays? Or randomly?

Conclusion

The NXE is definitely an exciting update for Xbox users, and it’s very cool that Microsoft can practically give you a new console with just a software update. Microsoft popularized the concept of a dashboard for gaming consoles, and is now blazing a new path with this mid-life overhaul. TiVo looks like it may do something similar sometime next year with a total replacement of its operating system. Hopefully this trend of major product improvements via software updates continues to expand through the consumer electronics industry. It’s nothing but good news for the consumer.

• Joystiq: NXE overview, feature tour videos