Well, we are now up to v0.0.0.5... and it's now using web services. OK, don't get your hopes up, it's not from XBOX; but rather one via this website. Basically, one of the thoughts I had while using personally using the friends thingee is that how do I know if my friends will see if I'm on Live or not? They'd know if they were also on Live and if they were running this application. OK, so I know whether they are Live; but it would be nice if I knew they were using this application as well. That way, when I jumped Live; I'd know they some of my friends would see me if they were in front of their computer and have instant notification that someone is now wanting to play. So enters the web service. Basically, it just pings addressof.com with your gamertag and your configured refresh interval. On the way back, it is able to take your list of friends and compare it to the ping list and return whether they have pinged within their configured refresh interval.
I've also given up for the time being trying to automatically log in. Everything I've tried is pretty ugly and downright kludgey. So, for now, if it detects that you are not signed in, you can click the sign in link. From there, you will be presented with the browser and the xbox signin page. Once you successfully sign in and are presented the friends list page my xbox live, the application will transform back into it's normal state. I think this is the best solution given the circumstances.
Also, why the heck does the XBOX Live website sign me out after a period of time? I know it's not due to inactivity... I'm refreshing it every 5 minutes. And another thing... if I'm presented a checkbox that says to automatically sign me in... why do I EVER see a sign in page?
Made a few other tweaks and changes. Next free night... the auto-updater application block is on my list of experimentation.
[update] Modified download link to take you to a dedicated page for this project.