You end up paying more in the end, yes, but consider that the first 4ish years of LIVE service are actually free and you are paying $200 in installments on the hardware, just another way to look at it. Most people are okay with this model, it's been the mobile model for two decades now.
Yes, it`s another way. Well, it will really depend on the customer who wants to buy a Xbox 720 from the start.
But looking at the Xbox 360 (with Kinect) deal it really becomes a long term expense even if the first payment and monthly payments are smooth: 99$ + 2 years of Xbox live at 14.99 per month. Which in the turned out as: 99$ + 359.76 = 459.76$.
So basically you paid - taking into consideration the price of Xbox 360 4GB with Kinect, at the time (299$) of announcement -160.76$ more for the console.
Applying it to the new Xbox 720 you do save Money on Xbox live, BUT, it`s mandatory that you pay for it even if you don`t want it.
Basically, there`s a cheap model for hardcore gamers but no cheap solution for the rest of the market like kids or more casual gamers (i don`t mean non-gamers) who often play the hit titles of a generation like CoD.
After all the popularity of Xbox 360 in more recent years with CoD and Kinect, MS is basically closing the doors to those crowds.