DISCLAIMER: This answer is based on some spontaneous research, but I hope it sets you off in the right direction.
A good start would be to do a bit of market research on the Windows Marketplace website. http://www.windowsphone.com/en-GB/games (British localisation. You can change the localisation at the top-right of the website).
From my initial impression looking through myself, most developers seem to go straight in with pay-for full-version games. There are a few cases of demo or free versions being released, but none of which are under the XBox Live tag. ( http://www.windowsphone.com/en-GB/search?q=demo ).
In the XBoxLive submission tutorial, there is mention of, "Remember that the .ccgame file must come from an Xbox 360 project in XNA Game Studio, and must be a complete game with no errors." ( http://create.msdn.com/en-US/home/about/how_it_works_submit ). This could also mean that developers cannot submit demo versions of their games to the XBL section of the marketplace, as ordinarily you would see demo versions floating around (to not see an Angry Birds demo is a surprise to me).
As for the pricing itself, it seems to range anywhere between 50 pence and £8-£10. The price seems to be entirely dependant on content and/or the brand which is being sold. Based on this, for a "simple and small" game, $1 seems reasonable enough. Games like Angry Birds and Fruit Ninja sell for 79 pence ($1), and you rarely see full-featured games going for cheaper than that.