There are a few different reasons. One reason is that Xbox Live provides a Framework that allows the Game to determine who the Host is. Different Games (aka Stu

There are a few different reasons. One reason is that Xbox Live provides a Framework that allows the Game to determine who the Host is. Different Games (aka Studios) provide different multiplayer capabilities, but regardless of the type (one-to-one or one-to-many), Xbox Live provides the Framework that allows the Game to determine who the Players are, and thus who is placed in what role. So even if you are the Host (aka the Server is hosted on your Xbox and others connect to you), Xbox Live is essential in identifying your Account in relation to other Players. Another reason is the interoperable capabilities that Xbox Live provides in terms of the Xbox Community. Your Avatar, Statistics, Messages, etc, that are similar in terms of capability, but shared across the Game Library. This allows Games (Studios) to leverage the Xbox Live Framework to provide a better Community Experience.