To be clear: the update is not yet online, but should be soon.
From today onwards, the Xbox 360 Spring Update will be rolled-out by Microsoft in order to ensure we will have access to (among other things) the following features:
Support for a new disc type Xbox Game Disc Format (XGD3)
PayPal support* (PayPal will allow U.S. and international Xbox LIVE users to make purchases on their Xbox 360 consoles with their PayPal accounts.)
an auto-standby feature that places your console on standby if it’s idle for more than one hour, helping to reduce power consumption. (This feature will be automatically enabled after you download the update. You can change this setting in the System Settings on your console.)
It could be that your Xbox 360 does not yet recognize that the update is available, as the update will be distributed in six separate waves between May 19 and May 30 “to ensure a high quality deployment.”
Avatar Kinect?
From the 26th onwards Avatar Kinect should be available as well.
Please use this guide if you don’t know how to update your Xbox 360.
Fall update 2010
If you remember, the last update (fall 2010) brought us ESPN support, a new dashboard experience (with Kinect support) together with Video Kinect and last but not least Family Experience: making the Xbox 360 more family friendly.
Stay tuned for more info on the Spring update, as it should be here soon. Either way, we’ll be sure to keep you up-to-date.
Can’t see the update yet?
We are rolling out the Xbox 360 System Update gradually to all Xbox LIVE users starting today and throughout the next couple weeks to ensure a high quality deployment. Just like any other update to our service, you will know you’ve received it when you turn on your Xbox 360 console, connect to Xbox LIVE and receive a notification to download the update. It’s important to note that it may take a few days to make its way around the globe. Thanks for your patience if you don’t get it right away!
*PayPal functionality will not be available in the following Xbox LIVE regions: Brazil, Chile, Columbia, Czech Republic, Finland, Greece, Hungary, India, Japan, Russia, South Africa, South Korea, Taiwan
Source-of-update: MajorNelson
Subject: Reminder: Xbox 360 Spring Update incoming (today) 
Thu May 19, 2011 6:05 am