It's not bad...I use it with my Slikstik (which uses an Ipac), and I haven't had problems. It's kind of annoying that you can't remap the "confirm" and "exit" keys though, because you always need to have a regular keyboard handy, and you can't use a mouse for anything.
You do need to have the DVD in the drive, but there are ways around that, of course.
As far as Windows Live goes, you don't need to have it hooked up to that for it to work. That's only for match play, which is kind of annoying anyway.