I think this Is an Important optional feature as It can help to alleviate a lot of lag/fps drops In crowded areas. The ability to limit/hide other players outside of your friend list/party/guild could make the xbox handle certain situations a lot better, but this has to be a toggle-able option as obviously not everyone/every situation would call for It.

Just made a post mentioning this not too long ago, but, I kinda reverse-bumped it into oblivion.

But, yeah. I concur.