Windows Live Folder currently provides 500 MB of free storage space while individual files should be less than 50 MB in size.
Windows Live Folders - The service was code-named Live Drive.
Files can only be uploaded to Windows Live Folders via a web browser (IE or Firefox). You can create personal, shared, and public folders.
Chris has more more details and screenshots of Windows Live Folders on LiveSide.
It may be a bit premature to say if AOL XDrive will feel any heat from Windows Live Folders because the former offers 10x more space and there's even a desktop software to upload files from Windows Explorer.
Microsoft has neither released any desktop based file uploading client nor any tool to sync the online and offline file folders.
Update: Windows Live Folders website folders.live.com is now offline.
Related: Google Drive (gDrive)