See one thing people on the internet seem to forget is that when you sign up for any internet service. XBL, Steam, WoW, even something as menial as Runescape, you are adhering to THEIR rules, and their interpretations of those rules. No matter how much you whine, or complain or think it's not fair/right/politically correct, as Sony put it: Live in your world, play in ours. It's another world, it's not the same as everyday America/Canada. Technically Microsoft is entirely in the right in this situation, XBL, if they had it their way, is a place for a target audience of 14-20 to screw around and play games that you pay them for. Not a place to even hint at sexual preference, religious orientation, or even if your male or female. They put the about you part in merely to please their audience by making them feel it was a more social outlet.
Having said all of this, I do agree that the user being banned is ridiculous... but at the same time, they have the right, the means, and you agreed to be their ***** when you hit OK on ToS.