I would buy the CAG gamerpics if they ever came to fruition, but since they didn't the 1,600 MS Points would go into the digital bank in wait for Castle Crashers and Bionic Commando Rearmed.
Honestly, I don't know if I could decide between Penny Arcade Adventure (OTRSPOD) OR Castle Crashers. It depends how social and corny I feel on a given day.
I most likely would spend all the points on Rock Band songs, but I do still need to pick up the variety map pack for COD4 as well, so it would be a toss-up.
I'd rent some movies to watch with my wife. I love the HD movie rentals with no late fee and no damn storefront mall full of idiot teenagers to drive to when I want to return it.
My first priority would have to be rock band songs. I have most of the good ones currently out, but you can never have too many songs to rock out to =P.
Also I heard Halo 3 will be releasing more maps for dlc, so I'd try to save some points to download those!