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issue occurs if your router or the gateway is incompatible with Xbox
Live, or if your router or the gateway has an incorrect MTU setting.
Note: Xbox Live requires a minimum MTU setting of 1364. We recommend
that you try out the steps shown below.
ok well I found a fix but it may not be simple. anyway, i got my xbox360 to work off of my girlfriends laptop by feeding internet to the laptop from the cable modem via usb and then from the laptop to the xbox360 via ethernet. just right click usb connection in network connections and click sharing tab, then activate sharing and tell it to share connection with lan connection... you can also share through wireless if your xbox is wireless. I tried running all this through a dsl wireless router and a basic hub and both of them gave ip address and mtu errors... good luck
MTU stands for "Maximum Transmission Connection". Some routers and/or network gateways are incompatible with Xbox LIVE, while others may be compatible but merely need to have a setting changed. If you compare your router to the list of routers at the following web address, you can confirm whether or not your hardware has been confirmed as compatible with Xbox LIVE by Microsoft:
Whether or not your hardware is listed as compatible, it would still be a good idea to check your instruction manual for the hardware you are using and see how (if possible) to change the MTU settings. Microsoft suggests that the MTU setting should be 1364. Using untested hardware or hardware not listed as compatible may still work, however, future updates to LIVE may suddenly make your hardware incompatible, as updates to LIVE and the Xbox console are made to work with the specifications of tested and listed compatible routers and gateways.
we had the same issue. Here is how we fixed it. I had the xbox 360 plugged directly into the westell 6100 modem via ethernet cable. the mtu test failed everytime. I was extremely frustrated and called microsoft and verizon (dsl) about 10 times each and they kept giving me the wrong solution. (get a new modem, get a new server, pay us money and we'll figure it out etc...) Here is what a man at microsoft told me to do and finally it worked. Power cycle your equipment (unplug modem and xbox 360 for 30 sec.) then, plug in modem first and wait until all lights are back on. Then plug in xbox and run test. In my case mtu failed again. I was then instructed to go to my dashboard and restore xbox to factory default which I did and rerun the test. This time everything FINALLY passed. We were in business. I then decided to try connecting through my airport extreme router. I power cycled again starting with the airport then the modem then the xbox and ran the test and unbelievable as it sounds it all passed and my son is now sitting happily on the couch playing a game online with his xbox 360. This took away days of my life to get this simple thing done. I was given codes to change and change back on the computer, phone calls to everyone and the solution was so simple when you finally reach a knowledgeable person. Hope this will help save someone else the time I spent!