You don't even need to have an XBox or a live account, just know some the gamertags of your friends!
An internet connection (edge/3G/WiFi) is required to download the images.
After importing, go in and edit the contact picture and then re-save (no need to move it around) to have it appear full screen when a call comes in!
What's new in this version:
+ Faster initial connection
+ Keyboard disappears when making connection
+ Edited images in the address book no longer have the white border
+ New icon