Xbox Live director of programming Larry "Major Nelson" Hryb has confirmed on his blog that rumors of PayPal functionality being added to the Xbox 360 console are true. "We’re expanding our integration with PayPal to allow U.S. and international Xbox LIVE users to make purchases on their Xbox 360 consoles with their PayPal accounts," Hryb wrote.

In mid-2009, Microsoft added PayPal functionality for users in the United States via Xbox.com. The new console update will bring the same functionality to the Xbox 360 console.

Users in valid regions will first be required to "link" their PayPal accounts to their Xbox Live account on Xbox.com. Once the link is established, the Xbox 360 console will recognize PayPal accounts as a valid billing option for purchases made on the Xbox Live Marketplace, including the ability to buy Live Gold accounts and Microsoft Points.

"We are rolling out the Xbox 360 System Update gradually to all Xbox Live users starting today and throughout the next couple weeks to ensure a high quality deployment." When the update is available in your area, a message will notify you to download the update on your console.

According to Hryb, this update also brings with it an "auto-standby" feature, which "places your console on standby if it’s idle for more than one hour, helping to reduce power consumption." This feature will be enabled by default, but Xbox Live users can change this setting at any time.

Finally, Hryb thanked Preview Program users for helping to test the new update, noting: "Your contributions helped us prepare for the updated Xbox 360 disc format capability that comes with this release."

PayPal functionality is not available in Brazil, Chile, Colombia, Czech Republic, Finland, Greece, Hungary, India, Japan, Russia, South Africa, South Korea, and Taiwan.

Microsoft's planned Avatar Kinect feature is not included in this update, but it is promised for later this year.