I believe this approach raises the overall quality of games in the Marketplace. A developer on Xbox Live Marketplace will be less inclined to rush out a broken game and release updates every day until it works. If they have to pay $40k/update, they have an incentive to do it right the first time, with some leeway to fix unforeseen bugs (the free first update).
That's not very good for small developers that may want to iterate over their games or provide extra content for their users. Developers who simply do not have the resources to test in a wide variety for hardware, or to get their game just perfect for the first update. And as a user, I love having access to games by these developers. Steam would lose a lot of value to me if it wasn't such a helpful platform for small devs.
And that's without even getting into updates that provide extra content. Steam's flagship game, Team Fortress 2, updates at least once a month with extra (free) content. That generates mayor amounts of good will towards the devs, and it would be completely unsustainable if the developers had to pay $40k to update, and another $40k to fix any bugs or imbalances in the update.
MS has pretty strict size restrictions on title updates, since they have to fit in cache for users with no real hard drives. This means you're not going to deliver new content through patches anyway - you have to distribute it through DLC instead. This leads to about a million other problems, primarily when it comes to compatibility between players online who may or may not have the DLC, duplicating content since you're required to not have dependencies between your DLC, and the fact that MS frowns on free DLC.
I was arguing that this policy would be bad for Steam or other PC marketplace services. It's possible than on a closed system such as the XBox some of the disadvantages of this are alleviated or solved. I still think charging the dev for adding extra content for his game is a very bad idea, though. Team Fortress 2 for the XBox sucks for it, for example. Regular updates is a good model for the user, and it hurts the user to charge for content that would otherwise be free. Alas, I know that helps greatly reduce the number of bugs in the system.