From what I understand (although Ket or someone better informed are welcome to step in):
Always Online DRM: Yes, the system must connect to Live once every 24 hours. Even if you purchase a physical retail copy of a game, it is copied to the internal HDD and thus needs a DRM check to validate it. No games play directly off the disc, the disc is just an alternative to Digital Distribution but functions the same way. It was hinted that yes you will be barred from playing games if your live account cannot validate but still be able to have the xbox intercept your cable signal and you can watch TV.
Sharing Games: You can log into your Live account from a different location or console and still access your games through the cloud service. You can have up to 10 family members assigned to your Live account who can share access to your library. If your buddy wants to play a game you own you will have to give out your login and password for him to borrow your entire account. If you add an acquaintance to your buddy list, after 31 days of being associated you may gift a copy of a game you own to that friend. However, you relinquish all further rights to that copy. A game can only exchange hands once. There reportedly is no fee for this.
Trading/reselling games/Rentals: Rentals and trading in games will not be available at launch. Private sales between strangers isn't possible, unless you want to wait a month for them to be flagged as a friend. Game publishers have the power to disallow second hand exchange altogether, or charge a fee for it if they want. It was implied that trading in will also only be at participating providers. However, MS is not charging for any cut of these transactions or licensing to be a participating provider. Basically, even though you are getting a physical copy the storefront you are trading through probably has to get a DRM validation code for you from the publisher, and the publisher can either charge a fee for this (like EA had in the past) or completely refuse. It was suggested early on that the fee could be the full retail price of the game in question. I have not read anything regarding digital distribution but I assume it is completely locked down to a specific account like any other DD is.
It sounds like MS doesn't have this entire system ironed out yet, or the current OS that's being shipped doesn't yet support it, which is why none of it will be available for a while.
K'nect Monitoring: K'nect camera and microphone are always on and recording. There is no way to disable this unless you completely dis-k'nect the main power supply.
Probably worth throwing out a reminder that the system is not backwards compatible with xbox or xbox 360 games.
