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I have four profiles set up on my Xbox. Two of them have Xbox live accounts (me and my wife) and they sign on with no problems. The other two are for my children and they do not have Xbox Live accounts. When they sign in, they always get pestered with a message saying:

"Your console can't connect to Xbox live. Do you want to exit this session and test your network connection? If you are playing a game, you will lose any unsaved progress"

The highlight is on Yes, which means more often than not my children end up in the network settings. Not somewhere I (or they) wish them to be when all they want to do is play Happy Action Theatre! ;)

Is there a way to make sure this message doesn't appear for them? And why is it coming up anyway, as they do not need to connect to xbox live(and it connects fine on the test and when I or my wife log in)?

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One way would be to upgrade the profiles to xbox live silver accounts, but if you don't want them on live for reasons other than money, that probably won't be a good solution for you. –  Ktash Mar 5 '12 at 22:07
    
I don't know exactly how they work, but can you enable the parental controls for Xbox LIVE access? Just deny access to Xbox LIVE. This might not work, and only require a 4 key password every time the game tries to access LIVE. I don't know if this is for all accounts on the system or if you can select the accounts. (I used parental controls to prevent my roommate from mooching off my LIVE account at college) –  Adanion Mar 5 '12 at 22:55
    
I am curious why you don't just give them Xbox Live silver accounts, although I've never gotten this message personally when using a local account. Keep in mind that xbox silver can't play multiplayer games or spend money (since everything is done using a pre-loaded currency), although it is necessary to access Xbox live content on your dashboard. You may have a dashboard item that is asking to connect to Xbox Live. –  Resorath Mar 6 '12 at 1:18
    
Thanks for the advice chaps, I think I might just get them silver accounts and lock down as much as I can in Family Settings. Cheers! –  DavidGouge Mar 6 '12 at 8:52
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