Given that the device is not just sold as a gaming box, but as an entertainment center, requiring an on-going subscription to full function is a turnoff.
Netflix isn't an integral or standard part of entertainment center functionality though so I don't see it as lacking something for "full fuction". It wasn't part of the launch lineup either for the 360. The 360 is still primarily a games console.
It would be nice to have it as part of the basic unit without an ongoing XBox Live subscription since you still need a Netflix subscription but I don't think that the XBox fails to fulfill its stated design goals by not having it.
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