It appears that Microsoft now accepts Bitcoin online in the US only. Microsoft is only allowing using BitPay to process their Bitcoin transactions. First reported in a Xbox One subreddit by Redditor Shafnitz:
This is the first time I've noticed this option in my Microsoft account. If you login to your Microsoft Billing account (https://commerce.microsoft.com/PaymentHub), right below the option to "redeem a gift card" there is an option to "redeem bitcoins."
There is no official word from Microsoft on how they will use it for their Windows, Windows Phone or Xbox platforms at the moment, but that is sure to change in the next few days. Details on how to use Bitcoin on your Microsoft account can be found here.
Most Bitcoin transactions should process immediately. If it doesn’t, please wait up to two hours for the transaction to complete before contacting support.
Money added to your Microsoft account using Bitcoin cannot be refunded, so make sure to review your transaction before paying with your digital wallet.
You can only use Bitcoin to add money to your Microsoft account and then purchase digital goods at select Microsoft online stores. You can’t use Bitcoin to purchase Microsoft products and services directly at this time.
Support for adding money to a Microsoft account with Bitcoin is currently limited to the United States.
If you believe that there was an error with your Bitcoin transaction, please Contact Support*.Note: *Please have the following information ready before contacting support:
1. Your refund receiving Bitcoin address
2. Blockchain transaction ID/URL
3. Transaction details including amount, date, sending address, and receiving address
This seems like a big step forward for Microsoft and it looks like it could be a game changer too. More on this as it develops.