One of the cool things about developing for Windows Phone 7 is that the developer has access to the touch screen. This mode of input can provide a more intimate tactile feedback than a controller could in many different situations. For example in Scribble Defense for Windows Phone 7, I added the ability for the player to flip over the pencil and use it as a eraser. The player then proceeds to rub the enemy scrawls to death, which from my recent testing have shown can be very fun :)
Another advantage with the touch screen is by placing contextual buttons in the game screen. Most people are used to pushing buttons with labels on them, this creates a self-reinforcing notion that this button will always do what it says. The player does not have to worry about memorizing controller layout, they just look at the screen and there are all the controls. It also is easier for people who skip tutorials and jump right in the middle of the game, because the controls are self labeled making them less prone to confusion.
I've made this video to show the upgraded UI and the eraser mode. Enjoy!