looks like your MTU needs to be set between 1364(xbox minimum)-1500(ethernet max)
from the xbox web site
Quote: "
Xbox 360: You cannot connect to Xbox Live: The console fails the MTU test
View products that this article applies to.
Article ID : 908882
Last Review : April 25, 2007
Revision : 3.9
SYMPTOMS
You cannot connect to Xbox Live. When you perform the Test Live Connection test, the test for MTU displays Failed.
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CAUSE
You experience this behavior if your router or the gateway is incompatible with Xbox Live, or if your router or the gateway has an incorrect MTU setting.
This test confirms that the network has sufficient Maximum Transmission Unit (MTU). MTU is a setting on the router or the gateway that can affect network performance. Xbox Live requires a minimum MTU setting of 1364. If your console does not pass this test, you cannot sign in to Xbox Live.
If you have multiple consoles that are connected by using the same connection, you may cause a failed MTU tests. A failed MTU test may also be caused by sharing the connection with a computer.
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THINGS TO TRY
1. If you are using an Xbox Live-compatible device you should not receive this error message.
If you do have an Xbox Live-compatible device, follow these steps: a. Visit the following Web site to determine whether you have the correct firmware version that has been certified as compatible:
http://www.xbox.com/en-US/support/connecttolive/xbox360/homenetworking/equipment.htm (http://www.xbox.com/en-US/support/connecttolive/xbox360/homenetworking/equipment.htm)
b. See the router or gateway instruction manual for information about how to change the MTU setting.
2. If you share a connection with a router and a modem, try a direct connection without the router.
Note This eliminates any router configuration problems.
a. If you can connect without the router, you may have to set the MTU on the router to 1364. To do this, or determine whether your router supports this feature, see the router support documentation or contact the router support group.
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MORE INFORMATION
For information about compatible Internet service providers (ISPs), visit the following Web site:
http://www.xbox.com/en-US/support/connecttolive/xbox360/isps/intro.htm (http://www.xbox.com/en-US/support/connecttolive/xbox360/isps/intro.htm)
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