Commonly accepted as the online gaming service for the Xbox provided microsoft, in some circles the phrase also means 'doing good' or 'feeling well'. It generally connotates feelings of contentedness or happiness. Sometimes variated to 'Xbox live fine', altought this makes less sense in some ways, as the phrase is sort of meant to sound like live, only with Xbox at the front of it, changing it's definition slightly, so adding fine to the end is percieved by some as a nerdier and less catchy version.
Emma : How are you David?
David: Oh yeah, I'm Xbox live.
David: So, mum, how's the business going?
Mum: Yeah, it's all Xbox Live at the moment.