For some people, this is old news but figured I would post this info for the noobs.
To start the mouse and or keyboard must be USB. I can confirm this works for the keyboard but I have never tried this with a mouse.
1. Plug keyboard and mouse into the XBox 360 using the USB connection.
2. Turn on the XBox 360. The XBox 360 will automatically recognizes the devices.
3. Use your mouse to navigate through XBox Live. Use the keyboard to fill out forms on XBox Live.
