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Amazon.com announced Tuesday that its Prime Instant Videos service is now available on Microsoft’s best-selling Xbox 360 console. The service was previously made available on numerous other less popular devices, including the Sony PlayStation 3 and Roku.

“Amazon Instant Video is now playing on your Xbox 360,” the Amazon.com web site notes. “All videos you've purchased or have currently rented from Amazon are now available on your Xbox 360. If you're an Amazon Prime member, you'll also find the entire Prime Instant Video library waiting for you. You can start watching thousands movies and TV episodes today at no additional cost with your Amazon Prime Membership.”

This is big news, people, and it dramatically enhances the Xbox 360’s already stellar digital media offerings, putting it well ahead of the Apple TV, its nearest competitor. (That said, the Xbox 360 does have a single Achilles Heel compare to the Apple TV: All of these digital media services require you to separately subscribe to Xbox LIVE Gold at an additional cost of $60 per year.)

The Amazon offering consists of two parts. Amazon Instant Video is the e-tailer’s online video service, and it offers TV show purchases and movie rentals and purchases in both SD and HD formats. It is analogous to Apple’s iTunes-based TV shows/rentals. (And with the similar services currently offered by Microsoft through the Zune Video Marketplace, soon to be renamed.)

The second is Amazon Prime Video. This service is Amazon’s version of the Netflix streaming service, but instead of charging a monthly or yearly fee, Amazon provides it to subscribers of their Prime shipping service, which provides 2nd day shipping for physical items and costs $80 per year in the US. (Prime shipping is a HUGE benefit if you buy a lot of stuff at Amazon, as I do, and the Prime Video service is just the icing on the cake.) Currently, Amazon Prime Video is, well, barely competitive with Netflix, but it’s getting better.

According to Amazon, the introduction of its video services on Xbox 360 provides the following features/advantages:

Amazon Prime. Xbox LIVE Gold subscribers who are also Amazon Prime members get unlimited access to over 17,000 Prime Instant Videos at no additional cost. Learn more about Amazon Prime.

Your Video Library. Anything you buy from Amazon Instant Video will be available in Your Video Library on your Xbox 360. Just visit the Amazon Instant Video store online, and shop from a library of over 120,000 movies and TV episodes.

Your Watchlist. From your Xbox or from the web, you can organize your viewing with Your Watchlist. Add any title to Your Watchlist, and enjoy when you're ready.

Xbox Kinect. With Kinect, you can also find and play your videos with the wave of your hand or the sound of your voice.

Perhaps not coincidentally, I’ve been preparing an article that looks at the Xbox 360 as a digital media hub for the living room. But between this announcement and today’s earlier preview of coming E3 Xbox 360 announcements, I think I’m going to wait a week. :) This stuff is already great. But it’s obviously getting better, even as I write this.  Stay tuned.