I called Live Support last night and the rep confirmed that the code is valid, but it was not activated by the retailer.
On the back of the pre-paid card it says the card is useless until it's activated at the register upon purchase.
One thing that is odd- I received an email from BB at the address they have on file with a 12-month pre-paid Xbox Live code. The code is different from the one on the card and it actually was accepted by the system. When I mentioned this to the Xbox rep she had not heard of BB sending an alternate code via email that was to be used in lieu of the code on the card.
I guess I'll be going back to Best Buy (with my receipt) to see what they are going to do about it.