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What you need to do is uninstall both parts of the old GFWL from your PC's control panel, then go to the Dark Souls install directory and enter the REDIST folder.
(Steam\steamapps\common\Dark Souls Prepare to Die Edition\REDIST)
First, enter the DirectX folder and run DXSETUP.exe. Then back up, enter the other folder named GFWL and run Gfwlivesetup.exe. You should not have to restart.
Let me know if this works or not.
I'll have to try other things to see if I can fix this later this weekend. Too busy during the week to sit down with this one, haha.
Thanks for the idea!
The theory with Games for Windows Live seems to hold some water though. I just tried Bioshock 2 as well which uses GFWL and that did exactly the same thing. Avatar border turns green, looks like I'm playing it, wait for a while, goes back to blue.
I'm gonna have to take a closer look at that this weekend.