So, it works exactly as I stated. You can sell your game and it removes your license, opening it up for another customer to obtain it for whatever the cost. And the developer gets a cut, as does MS for running the service. I see no problems with this. So long as you are buying from a store like Gamestop, you get the used game no problem.
The real question is how exactly these licenses are activated by the user. If it is some kind of disc based, no user involvement method, I am all for it; if I have to enter a code for every game, I am against it.
I also wonder if there will be a way to manually deactivate the game for private party sales.