You could probably sue to be honest. You need to see if they have something in their terms of service that stops you from playing on over seas servers...
Yeah I'm going to read their guidelines but I doubt I could sue them since Xbox live is not a service that I get guaranteed with my Xbox360.
It's more like an additional gimmick they don't really have to provide. My Xbox still does what it's meant to do - which is playing games.
Seriously I can't understand why are they doing this. I can't think of a single profit except for the fact that maybe 1% of these banned people will buy new consoles to play online. At that point I'd rather get a PS3 since I already have one xbox and basically both consoles have similar games and ps3 has free online functionality with no banning.