Maximum Transmission Unit is a network setting that restricts the size of a data packet during network communications. Therefore, the MTU error indicates the Xbox 360 console is experiencing difficulties transmitting packets of data to the Xbox Live servers. In other words, if a 1500kb packet is sent to the Xbox Live servers, but the network only allows for 1200kb, then the MTU error is generated.
MTU errors have plagued the Xbox 360 and its predecessor, Microsoft’s Xbox, due to system dependencies on the Xbox Live servers. Upon original release, the Xbox was not designed to work with wireless routers or bandwidth-intensive home networks. Instead, it was designed for direct connection to a modem or router via Ethernet cable. As home networks expanded to include wireless routers with multiple connections, MTU settings have been altered to allow increased transmission-unit and data-packet size.
According to the Xbox Support, the error is attributable to known compatibility issues with specific routers and Xbox Live, incorrect MTU settings on the router or gateway or excessive bandwidth consumption from high network traffic.
The Xbox Live servers are occasionally taken offline for maintenance without notice to system owners. If this is the case, players trying to connect to the Xbox Live service can receive an MTU error.
The easiest solution is to reboot your network equipment--the router, modem and Xbox 360. If this doesn’t fix the MTU error, connecting your broadband modem directly into the Xbox 360 through an Ethernet connection is the easiest way to test the source of the error. If you can connect to the Xbox Live service while bypassing the router, you know it is a router-based issue that requires further troubleshooting. Generally, most routers’ MTU settings should be above 1400.
The router’s firmware may need an upgrade to make it compatible with Xbox Live. Check the manufacturer's website for instructions on upgrading the firmware. There are known routers incompatible with Xbox Live services. A list of compatible routers can be found on the Xbox Live Support website. A general rule of thumb is that if the router is compatible with Windows Vista, it is compatible with Xbox Live.