The Dashboard update adds, among other things, compatibility with the updated Xbox 360 disc format, which reportedly offers developers 1GB of extra space for their games.
The system update also includes an auto-standby feature that places your console on standby if it's idle for more than one hour, helping to reduce power consumption, and further integration with PayPal.
"Once you've linked your PayPal account to your Xbox Live account on Xbox.com, you'll be off and running to use it as a billing option, allowing you to buy content such as Microsoft Points, Xbox Live Gold subscriptions and Games on Demand titles," explains official mouthpiece Larry 'Major Nelson' Hryb.
Microsoft plans to roll out the 360 system update "gradually" to all Live users starting today "and throughout the next couple weeks", which it says is to "ensure a high quality deployment".
"Just like any other update to our service, you will know you've received it when you turn on your Xbox 360 console, connect to Xbox Live and receive a notification to download the update. It's important to note that it may take a few days to make its way around the globe. Thanks for your patience if you don't get it right away!"
Microsoft said today that a recent software update - and not today's new firmware - is behind disc read errors being experienced by a small number of Xbox 360 owners.
It's previously been suggested that Avatar Kinect, the new face-tracking chat service for Xbox Live, will also be arriving this month, though Microsoft's yet to confirm.