Yes, you can you your 360 Xbox Live for Original Xbox games. Just the other day I was playing Fable on my 360, but had logged into Xbox Live.
Xbox Live must have something over PS3 and Wii, cause I have a friend at work, gloats all the time about his PS3 and free online, but he has an Xbox360 and still pays for Live. =_=
I personally think its worth the subscription, not to mention I just got a month free by winning on that GTAIV sweepstakes back in February. Anyways, thats just my opinion. They do have a free Xbox Live Silver Membership, which lets you do everything like download movies, demoes, DLC for games.. it lets you talk to people on your friends list... everything but play online multiplayer, which you need the gold membership for... if you get a new 360 game by Microsoft Game Studios.... then most of the time it'll come with one month free