MIcrosoft has announced XBox 360 updates that will give interface a cartoon-like appearance and a deal with Netflix that positions the XBox as an Apple TV killer.

“When people turn on their Xbox 360s this fall, they’ll get an entirely new interface and Dashboard, an entirely new Xbox through the magic of software,” said John Schappert, head of Live services. New features will include those fancy new Mii-like 3D Avatars, a new emphasis on community with IM, video chat, and photo sharing, along with a brand new 3D slide interface for the main Dashboard screen.

Engadget has posted images of the new interface – and it looks like the bastard child of Apple’s Coverflow and Microsoft Bob.

XBox 360 + Netflix

More interesting is Microsoft’s deal with Netflix, which will let you stream movies and TV episodes from Netflix to your television via the Xbox 360. This feature will be available to Xbox LIVE Gold members who are also Netflix subscribers.

A library of more than 10,000 movies and TV episodes will be available from Netflix when it launches on Xbox LIVE in late fall, with more choices added over time. According to Microsoft, with this deal, Xbox 360 will offer more movies and TV shows on demand than any other device connected to the TV.

“Xbox 360 will be the only video game system where you can access your library of instantly streamable movies from Netflix,” said Microsoft’s John Schappert.

It’s great to see companies ratcheting up support for Internet TV. While the Apple TV is a great system, it still only offers a fraction of the video content that’s available via the Internet. Increased competition from Microsoft and others means that this time next year, we’ll have a range of decent Internet TV options.