I bought it online. Yes it works 100% because I just did it earlier this morning. When you reach the final step it will ask what method of payment you want to use, and it usually defaults to paypal/credit card, but you can hit edit and choose "Use Microsoft Balance". And if you're short a few dollars it will ask what method of payment you want to use to cover the rest of the balance. Here's instructions on how to redeem the card.
Here's a really good FAQ to get you started!