The report states the gamers fingered were those who modified their consoles to play illegally downloaded games. Xbox 360s are fitted with anti-piracy tools that detect whether a game is legitimate or snagged off the back of a virtual lorry. It's possible to circumvent this, and Microsoft has confirmed it's this naughtiness its banning frenzy has targeted.
Anyone kicked from Xbox Live will still be able to play games, but their online accounts will be suspended and online gaming options prohibited. It's not clear if the bans are all permanent, or if users can appeal. Microsoft's support site would be a good place to start if you think you've been kicked without reason.
What's more concerning, however, is that there are a number of companies and individuals who will happily charge naive gamers to hack their consoles. A quick Google search shows a number of options.
It should be noted that modifying consoles to play pirated games has been illegal in the EU since 2003, and in 2005 the UK saw its first conviction as a result of this law.
Have you been wrist-slapped by Microsoft? Let us know in the comments.