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Do this by right clicking on the game in your library, select properties, then on the General Tab, click on Set Launch Options, enter “-dx09” without quotes, select OK and close, run the game and for me it worked, the game loads and I can now play.
-edit-
Damn, i just bought this too and it has to be broken? whyyyy
1: (http://forums.steampowered.com/forums/showthread.php?t=1844699) just removing GFWL all together with a .dll
2:Open up Programs and Features from the control panel and uninstall both games for windows live entries. Redownload and install GFWL (http://www.xbox.com/en-US/LIVE/PC/DownloadClient). Start gfwl up, sign in and leave it running in the background.
Now boot up bioshock and you should see the lovely splash screen showing you that something was fixed.
After a bit, windows live should pop up asking you for the bioshock cd key. Enter it in and it'll tell you an update for bioshock is available. Follow the instructions after it downloads and if you're lucky bioshock should be fixed for you.
Now i tried both these fixes with success, but had my saves moved out of the folder for both fixes and only moved them back after the second fix. So I'm unsure if you can use your old saves when removing gfwl all together.
If you need your bioshock 2 cd key, just right click bioshock in your steam library and click view cd key.
i was really hoping that would fix it but i guess not.
tried and didn't work. i'm pretty sure that fix is for people who crash when signing in in game. my problem isn't even letting me in game.
Went to start - > All programs -> Microsoft Games for Windows Marketplace -> Games for Windows Market Place
Doing this prompted an update box to appear and a browser window to open. Downloaded the update from the browser, signed into live and then ran Bioshock 2.