Xbox 360, live service, trampling on consumer rights

I've been checking out this issue on Xbox live banning modded Xbox systems. They seem to have overstepped their boundaries as a business for the following reasons:

Case 1: Their reasoning does not match up with their actions. They claim to ban modded xbox systems so they "do not have and unfair advantage" over un-modded systems. This is a fair enough reason to ban cheats, but they specifically ban the hardware mac id of the systems. If they were to un-mod their system, i.e. restore the system to its original state, they would still not have access to the xbox live service.

This is an open and shut example of where they claim reasoning yet blatantly overstep their boundaries by not letting restored/unmodded systems back on xbox live.

Case 2: Their methods of detecting modded systems on xbox live is flawed. A modded xbox can still get on xbox live with another system's mac id and thus the system is modded. So if the service can't reliably detect whether a system is flawed, they may wrongfully ban people. I argue that as long as the system is detected as unmodded it should be allowed on xbox live. This is the only solution. Banning of specific systems doesn't make sense and oversteps on the rights as a consumer unless they know for sure the system is modified. I just proved they cannot tell for sure.

In a more general sense, TOS really is a copout for most companies. They blatantly put whatever they want without regards for consumer rights. TOS should be about protecting the company from consumers who make frivolous court cases, i.e. suing for delivering a pizza with the wrong toppings. Nowadays, most companies abuse TOS so they can forcefully take care of problems with no regards to the customer. Ludicrous!