Seems like a reasonable response from Microsoft
They are quite within their rights to ban the freetards from Live (its in the ToS black and white), they arent bricking the console and from what I've heard they don't even ban the Live account itself. The user owns the 360 and as such they can change it and do stuff to it - but they don't own Live and access to Live is not a right that comes with having the 360.
As regards the sales tactic commens than yes they obviously want you to buy a new 360 but they arent putting a gun to your head on that one. If not a single one of the banned users bought another 360 I seriously doubt they would lose alot of sleep over it. You've already bought the 360 orignally and since you are pirating chances are you aren't buying alot of games so they lose out on what £40 a year for your Live? Big deal!
With timing it with the release of MW2 it not only ensures high levels of media coverage of the ban to remind people of the possible consequences of modding their console it also helps that the people frantic to play MW2 might just go out and buy another 360, also it means that people who want it but are tempted to save the £50 and pirate the game might just buy it instead so the publisher wins too.
I'm genuinely shocked at the way some of the media is painting Microsoft as the bad guys here (yes Radio1 I'm looking at you), some days I swear if MS went round capturing serial killers there would be some hack interviewing the killers about how their rights had been violated and why shouldnt they be free to go round killing people.