Yep. it does the same thing. Create a party and boom everyone muted with no extra effort required at that point.
Just for the sake of clarity, it does NOT do the same thing. The "Friends Only" option only allows you to hear people that are on your friends list, even if they are in your party. The "Xbox Live Party" allows you to hear anyone in your party that is not muted and/or blocked. You can easily switch out of the party if so desired, but switching out of "Friends Only" requires you to go to the dashboard settings.
They are not the same, but yes, ultimately it will mute all those you likely don't want to talk to.
for the intent and purpose of the op it does the basic same thing. No it is not exactly the same but is a simple and easy solution to the ops problems. No extra changes of settings required. No needed extra feature in the game either.
Create party, set to invite only.. free of anyone ever bothering you again for that session. or set to friends only so friends can join. either way the party system is the simplest solution requiring very little effort to use.
time to complete.. less than a minute when first starting the xbox. level of satisfaction of not hearing randoms 100%. Simplicity and ease of use. 100%
Overall issue and problem solved. 100% extra feature needed by game or console developers 0%