Microsoft has always kept strict control of the size limit for Xbox Live Arcade games, the last few months that limit is becoming higher & higher. Some games earn an exemption from the 350MB limit.
The new Watchmen game has a huge (for Xbox Live standards) file size of 1.2GB.
"We have set Xbox Live Arcade game file limits as a general guideline. An important part Xbox Live Arcade is easy access, and keeping file size down is a vital part of that," Microsoft told Ars Technica.com. "Equally important is offering titles with superior gameplay. We weigh both considerations on a case-by-case basis, and will make exceptions when it makes sense to ensure the best customer experience."
As you can see from the screenshot from Watchmen it's indeed a wise decision from Microsoft to make exceptions, because the graphics are looking very good for an Xbox Live Arcade game.
