Multiple forum boards are filled with gamers asking whether it is possible for a virus to be transmitted over the Live network. The supposed virus is said to wipe content off your hard drive if executed, in order to be 'safe' from it, the best defensive strategy is simply not to accept random friend requests.

Quote:
While playing some Test Drive Unlimited today, a player in the server we were in warned us not to accept friend requests from 2 users he named (Will not post them unless it is confirmed) — for one of his real life friends accepted one of these users requests, and immediately afterwards his Xbox 360 shut down and completely wiped his harddrive. This rumor has also been around on many Xbox related forums, so this may not only be speculation. Some say users with the end tag of “_virus” carry this, but from the names heard, no “_virus” tag was mentioned. So be warned, DO NOT accept random friend requests for they may wipe your harddrive.

Dave Notti over at the Gamertagradio forums said this:

“In a voice message from an old xbox friend of mine, he describes the virus as “Able to remove friends off of your friends list, Delete items off of your Hard Drive and obtain confidential Xbox Live membership information”