So what's going on is this: the guy just stands next to Breezehome 24/7 now. He's always there and never goes anywhere at any time of the day or night. He's never inside the store and doesn't buy or sell anything. This really svcks because it takes away over 1K in buying power away from the merchants per day. It also means that if I need those last one or two components for smithing, I have to fast travel to some other place and get them.

Either that or he's in constant heat over Lydia. I don't take her anywhere anymore so maybe he's about to break in and do something crazy.

But I'm betting it's a glitch.

He's waiting for me. Lusty devil has the wrong Breezehome.

But seriously, has anyone experienced this and is there a way of fixing it for Xbox?

One thing that I found worked on NPCs who got 'stuck' was to equip a bow and hit them with it. It can't kill them, but can stagger them. Save first though.
Never had this happen to me, but the closest I've experienced is entering Whiterun at the front gate just in time to see Sigurd exiting Breezehome. These NPCs and their freaky, secret lives...

Along those lines: can you run and bump him like the archer in Solitude or perhaps Wabbajack him?

I am ashamed to say I've never used the Wabbajack...

From my experience anything that staggers an NPC, but doesn't aggro them can work for certain 'stuck' situations. If it's your follower you can even shout at them, since they won't be offended, but Ulfberth is probably not that tolerant - especially if he's standing there engrossed in thoughts of Lydia and then you yell at him.

Even if he got Ulfberth to attack he could flee and that might have the same effect, right? I'd probably call that Plan C though.

You couldn't have said "preoccupied".

http://www.uesp.net/wiki/Skyrim:Ulfberth_War-Bear

Read the bugs section.

Cool. Thanks for the help!