Don't worry, it's just the New Xbox Experience, an update for the Xbox 360 operating system that enables you to play on Xbox Live. The download is about 128MB in size, which will take up a fairly hefty chunk out of your storage if you only have a 256MB Xbox memory card. One of the benefits of the New Xbox Experience is the ability to install games directly onto a hard drive, dramatically speeding up load times in-game, so we recommend buying an Xbox hard drive if you don't already have one.
Newer "Jasper" series consoles have a limited amount of internal memory to fix this issue, so you may want to check what model you're buying as there is still a lot of older stock on store shelves.
There are many reasons on why your Xbox Live connection may be slow. First, check that you haven't gone over your download limit — this doesn't always stop you from connecting to Xbox Live, or even playing online, but it can dramatically reduce your connection speed and increase lag.
Another reason for a slow connection could be from other devices in your household that are connected to the internet. If they're downloading something while you're trying to play, it could be the reason behind the lag. The fewer connections to the internet you have while trying to play, the faster and smoother your Xbox gaming session will be.
When testing your internet connection, you may be told you have a connection issue in the form of your NAT, or Network Address Translation type.
In a typical home situation, multiple internet-enabled devices are connected to the internet via a router. While those multiple devices all have internet access to the outside world, all of these actually appear as one device — the router itself. When your router receives data from the internet, NAT ensures that the information intended for say, your Xbox 360, ends up at the Xbox like it's meant to, and not your PC.
According to the Xbox 360, there are three NAT types that your router may be set to: Open, Moderate and Strict. If your NAT type is Open, your home network is set up to best support Xbox Live and other people should have no issues connecting to you. If your NAT type is Moderate, you may have problems connecting with other Moderate or Strict users.
If your Xbox 360 identifies you as having Strict NAT, you'll likely only be able to talk to those who are on Open connections, and perhaps some Moderate, but they may have problems connecting to you.
There are a few methods you can employ to improve your NAT rating. Firstly, see if your router supports Universal Plug and Play (UPnP) in its settings. If it does, make sure this option is turned on in the router's web interface — this should simplify the implementation of your network and help with your NAT issue.
If you're a bit more technically minded and you still have an issue, you may need to clear your router's firewall and set up port forwarding properly, sometimes called "virtual server". To do this, you'll need to know the IP of your Xbox 360, and you'll need to either open these ports in your firewall, or point them towards your Xbox 360's IP. Unfortunately, every router is different so you'll have to find the appropriate settings on your own.
If technical stuff scares you and you're still pulling your hair out, as a last ditch option you could try disconnecting or turning off any other devices that are also attached to your network, such as laptops and other gaming devices. This may give priority to your Xbox and help address the problem.
Finally, if you are in the market for a new router and don't wish to encounter this problem, try looking for one that is marked as being compatible with Xbox Live or Windows Vista — these devices have been tested to work well with Xbox and other Microsoft systems.
If you have this issue, we recommend going to Microsoft's support site for help. If your Xbox 360 is connected directly to your modem, you should not experience any NAT issues.