The way it works is this: the criminal calls up tech support with a ‘problem’ posing as the ‘target’. He has some of the target’s info on his Xbox Live account and, if successful, he changes the password, thus giving him/her complete control over the target’s Xbox Live account.
Obviously, this is a major problem. Microsoft has been retraining its customer support staff since 2007 to combat such attempts, but there are always going to be criminal minds that are persuasive and successful.

There are ways to protect your account, though.  One way is by making sure you give out little or no information related to your account. By doing so, this makes it more difficult for someone to think of a convincing scenario. If they are persistent and highly skilled, then they could still take over your account, but at least it makes it tougher for them.

Now social engineering isn’t the only threat an Xbox gamer faces. There are other ways a criminal can take over your Xbox Live account. An example would be phishing. Phishing usually works like this. You will get a message on Xbox Live from either someone you don’t know or someone you recently added as a friend. The message invites you to go to a website and enter some of your personal information linked to your Xbox Live account with the promise of winning a prize. But by entering the information linked to your Xbox Live account, it makes this available to those criminals behind that particular website. Obviously, you should never give out that type of information to a random website; therefore, if you ever get such a message, simply delete it. Always make sure you can trust the website to which you make your information available and when in doubt, don’t.

Hopefully, this information helps a few gamers out there who would otherwise become a victim of either social engineering or phishing.

Alexander Hoogendijk (masterninja) contributed the majority of this article; I mainly edited and added my spin. I guess you could call me his 'publisher'. Good article, Alex!