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Its pretty simple if you know where to start. First, unplug the the ethernet cable from your computer (this should be the cable you use for connecting to the internet). If you use a USB cable for your computer, then you'll have to go get an ethernet cable, because that's what Microsoft uses for xbox live connections. PM me if you have a USB cable, or ask for some clarification here.
When you get the ethernet cable out of your computer, plug it into the back of your xbox. The port is on the lower right side of this picture.
When you plug it in, turn on your 360 (make sure there is not a disk in it), and go the the option that says "make new xbox live account", or something to that effect. Input all your iinfo (address, name, desired gamer tag, credit card number) and you should be set.
So, all you need is a internet modem, and ethernet cable, and a credit card.
If you want to be able to use your computer and xbox live at the same time, you'll need a router. That splits the feed from the modem into different ports on the router. You plug the ethernet cable from the modem into the router. Then you use two more ethernet cables. You plug one into your computer, and one into your 360.
[Edited on 1/14/2007]