Now that I'm an Xbox owner who has purchased something on Xbox Live (Carcassonne), I think I now have the right to say: Microsoft Points can go to hell. I'm all for Microsoft making you add money to your account in chunks so they don't pay 30% of every icon pack or song you buy to their credit card processing company, but making you buy imaginary currency that doesn't map 1:1 to real-world currency is madness. I think it's safe to say that they do it so that it's hard to figure out exactly how much you're spending on something. This was very clear to me as soon as I heard people first talking about it, but it felt cheap to complain that something was confusing before I'd had the actual opportunity to experience it myself.
Carcassonne was 800 Points. So, your first thought is naturally that it will cost you $8.00, because US Dollars are real currency that we're used to. But 800 Points actually costs you $10.00, and you can't buy just $10.00 worth of Points; you have to buy them in $6.25 increments. So, you have to buy 1000 Points for $12.50. If you never buy anything else (yes, that's unlikely), you paid $12.50 for something that vaguely looked like it cost $8.00. It's basically the same experience as buying things in foreign countries, except foreign countries aren't a mile down the street, they don't send me a paycheck, and it's more debatable whether or not they're trying to screw the tourists.
Just remember that the exchange rate is 100 Points = $1.25, which isn't terribly hard to calculate in your head... you just shouldn't have to.
[This is a fine time to remind everyone that I in no way represent Microsoft or its shareholders. For entertainment purposes only. Do not ingest. If you do, contact an internetologist immediately. I just don't want anyone to think that just because they pay me money I somehow believe that this system is not retarded.]
[In the original version of this post, I had the conversion ratio backwards and used $ instead of ¢, which practically proves my point.]