How should I spend my Microsoft Points?

What do you own already? What kind of games are you interested in?

You can get Trialds HD and all its DLC for 1600 MSP. MSP well spent in my opinion. Also look into the Map packs for Gears 3 if you have that game.

Bastion

The Walking Dead Series

MineCraft

Bomberman live

I don't know what kind of games you like or not, but here's my personal recommendations:

Castle Crashers (fun 4 player co-op beat em' up set in a cartoon midevil setting)

The Walking Dead

MineCraft

Trials (I haven't played it, but I hear it's very creative)

Skyrim DLC

Plants vs Zombies

I would highly recommend Ikaruga and Guwange, both are some of the best games in the genre available through the XBLA. Being manic shooters they're obviously very different from Fez, Torchlight and MotN, but they're well worth it if you're into the genre.

I would stay away from DLC, unless it's for Skyrim.

For games I reccomend

Limbo: Incredible and creepy atmosphere, with great trial and error gameplay.

Spelunky: Crazy fun with local coop. A challenging game though, not for those who frustrate easily.

ilomilo: Charming puzzler, makes you feel like a kid again.

Banjo Kazooie is also an awesome platformer, but I probably enjoyed it a lot for the nostalgic factor.

I'd recommend Mark of the Ninja, Bastion, Limbo, Guardian Heroes, and Dust: An Elysian Tale.

The Simpsons Arcade Game

MvC2, Geometry wars, carcassone, walking dead, bastion.

Toy Soldiers

Toy Soldiers Cold War

Trials Evolution

Defense Grid

Outpost Kaloki

if it was me i would buy geometry wars that game is great both the first one and the second.

I just got 4000 Microsoft points from this site for free! :D freemspointsforever comphxsunsazdbacks

Look at the games you have and like, and consider add-ons for those games. I'd pounce on the deal of 200msp for each fallout 3 add-on (if you have the game of course). I would advise against all arcade games, apart from Minecraft, can't go wrong with a good bit of MC.