From all the internet surfing, here is what I have gathered.

Your Banned 360:
1. Cannot go on Xbox Live
2. Cannot install games to the HDD
3. Cannot use Windows Media Centre extender
4. Cannot be used to get achievements from backups without corrupting your profile

I am fine with number 1 and 4. You use the xbox live service with pirated games, get banned. You got your achievements on a pirated games, your profile gets messed up.

There is a difference between refusing service on grounds of pirating/cheating and taking away functionality. I have purchased XBOX360. The money I paid is for: The console itself, accessories (Power, AV Cables, Hard drive, Controller) and the ADVERTISED FUNCTIONALITY (Playing/Installing Games, Watching Movies, Recieving Updates, Other console features). Installing games on the hard drive and ability to use Windows Media Centre extender is what I paid for. It is not a service that I have subscribed to on a monthly or yearly basis like the XBOX Live. It is not a contract based functionality. Microsoft can deny access to a service that is running at THEIR END, denying access to console’s functionality is plain dumb.

It’s like me buying a DVD player and the store manager telling me “Don’t watch Mickey Mouse DVD’s or else I will disable DVD playback”. What’s even worse is that people can still play pirated games offline on the banned XBOX. That itself defeats the whole piracy argument from Microsoft.

Piracy can’t be stopped by punishing customers and taking away features, that is childish. Microsoft needs to get it’s act together and find a better way to secure their console so it can’t be hacked. Maybe take a lesson or two from PS3.