After reflecting on this surprising announcement, though I doubt it will make any large splash in the market at this point in the product's life cycle, I have to say it is a good play on MS' part. This kind of subsidization model is worth trying in the case there is a sizable segment of the potential userbase for whom would like to use the Live service but couldn't justify the upfront cost of the hardware: it lowers the barrier of entry.
As others here have already mentioned, this could make for a good study of the market specifically allowing MS to gauge if their is a subsidization play they could make with the next "Durango" XBox. The ramifications could be as wide spread as convincing MS to improve the hardware beyond what they may be willing under the current console development model, if they felt a large enough base of customers would be willing to sign two-year high margin Live service contracts.
That is a far-fetched statement tho, I admit!
On a somewhat related note, following the link in the OP, I see that the deal is redeemable in local Microsoft Stores only? I did not know they still had those...I imagine there cannot be many?