The newest Xbox live update is in the process of filtering out to the masses, and it brings with it some pretty sweet features. It’ll offer downloadable Games on Demand (full games!), new Netflix options and a bunch more. Games on Demand looks pretty great; you’ll be able to download full games, including manuals, and you’ll have access to them forever, meaning free re-downloads in case you delete them. The new Netflix options include “movie parties” that sound sort of awkward, wherein you and a bunch of other avatars sit around and share digital popcorn (we are not making this up, see the press release below). But it’ll also give you more control over your Instant Watch queue and supposedly give you smooth playback even with a finicky Internet connection. No luck yet on the Facebook, Twitter, Last.fm, or Zune video additions we were promised at E3.

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New Xbox Live Update: Full Game Downloads, Expanded Netflix Features and More [Xbox Live]