The support page on Xbox’s site was quick to note the problem and posted that they are currently looking into the problem.
We are aware of the problem and are working to resolve the issue. We apologize for any inconvenience this may cause and thank you for your patience.
A press release by Microsoft also addresses the issue:
We’re aware that some users may be experiencing difficulty logging in to Xbox LIVE at present. This does happen from time to time while updates and fixes are made to the system and should not be symptomatic of any larger problems.
A service update can be found on Xbox.com, alerting Xbox LIVE users to the current state of the service. I don’t have an update on timeframe for service to resume as usual, but we are working on the problem.
While Microsoft has spoke to the crowd, a rumor has gone around that Xbox Live has been hacked. Personally I’m convinced that the rumor was started by some attention seeking brat.