According to a report from Joytiq, the next Xbox 360 dashboard update will be adding Paypal support.
The new update is expected to be rolling out May 19th. The inclusion of Paypal means as Joystiq notes “to new international markets.” The use of Paypal also allows users to pay for items using their Paypal account instead of submitting their credit card details directly to Microsoft.
This is purely speculation as Microsoft has yet to comment officially about the feature. If it is indeed true, it could be a safer option to purchase things via Xbox LIVE.