Software giant Microsoft and movie rental behemoth Netflix today announced that 1 million Xbox LIVE Gold members have downloaded and activated Xbox LIVE application from Netflix in the three months since the initiative launched last November.

The Netflix application allows Xbox LIVE Gold members to instantly watch movies and TV episodes rented from Netflix via the Xbox 360 video game and entertainment system. Xbox LIVE Gold members who are also Netflix unlimited members can watch movies and TV episodes streamed from Netflix on Xbox LIVE for no additional fee.

Xbox 360 is, so far, the only gaming and entertainment console with movie rental capabilities via Netflix.

However, other companies are rushing into the content-rental space, including Roku, which recently added access to Amazon movie and TV content to its set-top box. At CES last month, Netgear announced a more powerful Internet-connected set-top boxes. Apple TV has been offering streaming and download of movies and TV shows via Apple’s iTunes Music Store.

In addition to Netflix in the United States, Xbox LIVE Video Marketplace offers over 17,000 other episodes of content to the Xbox LIVE community. More than 12,000 movies and TV episodes are currently available via Netflix, with more on the way. Microsoft says that in the period from December 2008 to January 2009, Xbox LIVE Video Marketplace downloads have grown 174 percent year over year.