Digital game purchases through Microsoft?

I agree that the wording is slightly misleading, but it is saying that you can use these methods (Microsoft Account, Credit Card, PayPal) to make purchases, but not all methods work for every purchase type or on the website. Perhaps Microsoft should clarify
that, especially given that the first of the scenarios listed says:

Buy games or add-ons on your computer from Xbox 360 Games

1. Go to Xbox 360 Games.
   
2. You can select a game from the "Recommended" section or an add-on from the "Featured Add-ons." Or scroll down for more category options.
   
3. Select the game or add-on you want.
4. Click Download from Xbox Store, or click Buy discto purchase the game on a disc.
   Note Some games are only available on disc.
   
5. Follow the steps to complete your purchase.
6. Turn on your console and connect to Xbox Live. If you purchased downloadable content, the item will begin downloading.
   

Note If you don't have enough funds in your Microsoft account, you can use a credit card or other payment method associated with your account

The link I posted says...

You can download new games, add-ons for your favorite games, avatar accessories, music, and more from Xbox Live for your Xbox 360 console or Windows-based computer.

Note You make purchases from Xbox Live by using money in your Microsoft account or by using another payment method associated with your Xbox Live account, such as a credit card.

What other money in your Microsoft account are they talking about?

You can't as per the terms and conditions of the xbox 360 marketplace

There is no mention of using the currency on the website

You can only use currency on the console

And only on the xbox one marketplace

Perhaps I am misunderstanding what the policy linked says. To me it reads you should be able to use money in your account (such as purchased Microsoft Dollars) or a linked credit card to buy digital games, addons, and music on your 360 or via Windows in
the Microsoft Store.

It was part of a bundle. So you’re telling me I bought a bundle that comes with a game and my son can’t play it. Well, I’ll never be doing that again