Get this!

http://brh.numbera.com/software/xblist/

XBList is a Windows program written in C# that can display your Xbox Live Friends List in a buddy-list format. It is designed to be simple and unobtrusive. It also has some integration with Xbox.com to display Gamer Tiles and link to Gamer Card information, and Bungie.net to display Halo 2 information and player emblems. To use this program you must have an Xbox Live account, a Microsoft .NET Passport account, and an Xbox.com account. Your GamerTag must be linked to your Passport. No special setup is required - XBList should prompt you to log into Xbox.com using Internet Explorer once, then it should be on its way. Make sure to select "Save my e-mail address and password" at the Passport Login screen. If you don't it will never log in.

There's a bit of fiddling about required, but I got it working and it really is great for seeing when people are on Xbox live.