We've had good luck with XNA
thus far. It's a pretty robust development environment that's been thought out pretty well.
Currently a team of us are making a Tic Tac Toe game to build some foundation code to build a real game on top of, and to see how well we work as a team (it's going to have far more features necessary than tic tac toe needs - mostly just to see what we can do with the thing). In two weeks, working in people's spare time, we got the game up and running. Though we're still adding in bits like sound, rumble, menu's, etc, and are pretty much on schedule to finish in two more weeks.
You don't need a 360 to do the development at all. C# Express is free on MS's site, and the XNA framework is free too (just adds more DLL's into .Net and a few small GUI changes to C# Express). If you pickup one of the Microsoft USB Wireless adapters that'll let you use a native 360 controller on your PC (supports 4 controllers and 4 wifi headsets all at once), you're golden to start making games. You can do it with a keyboard too, but that's not the same.
A Direct X 9.0c video card with Pixel Shader 2.0 or higher is required, running on XP. Vista isn't supported yet, but may work.
If you get the subscription, you can compile/upload the code to your 360 on your LAN and have a go at your game. But again, you never have to do this to get a game fully working on your PC.
It's missing some functionality. Stereo sound has to be kinda hacked in, and networking is not supported which is a bummer. There are a bunch of other little things in there too, but I'm not a coder so can't really comment on specifics.
Good platform with lots of potential.
