Microsoft got it right.
The terms of usage on XBox Live are said to state that a user's account will be banned if they indicate their sexual orientation therein. Microsoft aren't banning this woman's account because she's a lesbian, they're banning the account for a breach of the terms of usage. To repeat a sentiment echoed by others before me on this thread, a gaming community isn't the forum to shout out about one's sexual proclivities, however mainstream.
This account was banned for breaking the rules. I'm confident there are other accounts where the gamer states that they are hetero/homo/bi-sexual and, if Microsoft find out about them, then they should be banned too. Unless Microsoft allow people who state that they're heterosexual to stay 'in play' whilst banning others who state that they are homosexuals, then the corporation cannot reasonable be accused of discrimination. Blame people who don't read the rules which are put in place to make life easier for everyone involved and avoid controversy just like this.
I'd also like to second the opinion of Waldo regarding the immaturity of users who thought it would be a good way to spend time tailing and teasing a fellow gamer. Although it wouldn't have happened had the usage terms been abided by, that's absolutely no excuse for a collection of people in an escapist world to start targeting and cyber-lynching others.