Responding to news of a possible class action law suit, Microsoft has responded by denoting that it is perfectly within its legal rights to ban people with a modified Xbox 360 from XBOX LIVE.

Spokesperson from Microsoft reacted to the possible lawsuit on Friday.
"Piracy is illegal and modifying an Xbox 360 is a violation of the Xbox Live Terms of Use. Microsoft is well within its legal rights to ban these users from Xbox Live."

Source: financialpost.com