I should qualify this post by saying that XNA is a fantastic framework and Microsoft is a darling for colluding with the Indie/Homebrew development scene. Now, with that out of the way ...
1) There are way too many non-games on the service
As a consumer and a developer, the pointless screensavers and massage applications irritate me. They clog up the service and, in all honesty, have no place on a digitial distribution channel that has "games" in the title. Conversely, as a greedy developer with bills to pay, I've had a few half-decent ideas for non-games (some of which that, amazingly, don't involve making the controllers vibrate) that could potentially make a few pounds for very little effort. As a matter of principle I've not yet gone down that path, though principles do have a habit of dissolving when unemployment pokes you with his bony finger.
2) The ones that are games have dreadful names
Biology Battle, Zoomaroom, Revenge of the Ball, Memorania, Neon Paddles. Without wishing to pick on these in particular, they do all sound awfully dull, like a game you get after painstakingly spending twenty minutes copytyping code from a 'Learn Spectrum Basic' book circa 1985.
Many XBLIGs have quite utilitarian names. Tank Strike, for instance, is admirably concise and conjures up a fairly accurate representation of the gameplay. Unfortunately this also can enforce rather low expectations for the game itself, as all curiosity and mystique are swept away the instant you read the title. It's possible to take three random words and end up with a better name for a game than most titles already on the service. Look, I'll do it now: Kaiser Raul's Fishbowl. See? I'd buy that game in a second.
3) The Box Art is even worse
A similar proportion of existing XBLIGs are cursed with generic, boring, lazy boxart. Some are downright dreadful; a garish mess of unreadable text and primary colours. The box art is where you set out your stall for the majority of your customers, so to get this so spectacularly wrong is shameful.
4) And they're all the same, aren't they?
Of every ten games, I might download the trial for one or two. For my tastes, there are far too many generic puzzlers and platformers. They may have some minor innovation in their main gameplay mechanic, but I've yet to play one that has compelled me enough to purchase it (partly because I'm a miser but also because of the lack of achievements. In many ways the 360 has ruined playing games in that I now feel I need an arbitrary little number to justify the time spent - enjoyment alone is no longer enough). With a few notable exceptions there is very little focus on storytelling or character development. Hopefully XAGE will go some way to addressing this.
Postscript: Yes, The Fourth Wall isn't a fantastic name and the box art is deliberately rubbish, so it is conveniently exempt from 2 and 3.