2 in private chat. But you can be tricky in this regard. Go into a game such as Halo 3. Create a private game lobby. Invite all the people you are playing with to the Halo lobby. Instant multiparty chat.
On second thought don't use halo because their lobby chat can suck.
Right, since reading in the other posts that multiparty chat isn't supported outside of games, I did think of the game lobby trick. My only problem with that solution is I can't imagine it doesn't somehow violate the Xbox Live EULA. It really wouldn't be worth the risk of being denied Live usage.
Does anyone know if using a game lobbie's chat for purposes other than playing that specific game can result in your Live account being banned?