Keep in mind that Microsoft not only banned those users but their XBOXes as well. So if you buy an XBOX that has been banned (modded or not) you won't be able to play anything on XBOX Live. Ever.
XBox Live is actually a great service, one of the best Microsoft provides. I could see them expanding it far beyond a gaming and Xbox-centric service to encompass overall media and content delivery, as well as features such as address book and email integration with the web-based Live (ex-Hotmail). It's a bit out of left field for their core business even today, but if I were a smart MS CTO I would be quietly shuffling money over to Live to strengthen that network's core infrastructure.
I should qualify that by saying it's one of MS's best *consumer-side* services. Not being a developer, I have no firsthand interaction with, say, the MSDN, but I imagine it's fairly robust as well.
MS does have a way to completely fry your XBox 360 remotely, so if you do pick up one of these, there is a chance that you're buying a very large, expensive-looking paperweight. They do it very rarely, but if you're buying one that's been banned for being modded, the chances are of course much, much higher.
Read: http://gizmodo.com/5403544/now-is-a-bad-…
Cool!
What a hilariously stupid statement.