Gamasutra has a great interview with Microsoft's Live arcade games Portfolio Planner David Every -- the guy in charge of greenlighting games for the Live Arcade -- on what exactly your game needs to be picked for the service:

When a developer approaches you, what types of things are you looking for that would make the game a good candidate for the service?

DE:...We're looking for games that are easy to get into and don't demand too much of your time...Xbox Live Arcade games are great for the more casual gamer, or for that matter, the hardcore gamer who's looking for a break between sessions of Gears of War...we think that XBLA customers appreciate a good board game, and many board games simply can't be reduced to bite-sized experiences...We're also looking for games that take advantage of the Live service, which is clearly a major differentiator for the Xbox 360. This includes multiplayer games, but especially multiplayer games that bring players of all kinds together (for example, a non-combat, cooperative multiplayer game)...And of course, we're looking for innovative gameplay!

Personally, I wish the requirements to get your game on XBLA were a little more stringent -- the platform is obviously capable of supporting some really cool new and innovative game experiences. Do we really need all these retro-arcade ports?

via XBLArcade.com