Official Xbox Magazine offers up a story on how people get banned from the Xbox Live service:

Rude Bio/Motto

Now if we have to tell you about this one, you're probably already beyond help. No hate speech, no swearing, no censor bypass, no racism... all common sense, right? Don't use words you wouldn't use in front of your mum. Simple, really.

Swearing on Xbox Live

Some people think that rampant swearing and shouting at other players on Xbox Live goes unpunished. Not so. It might require the presence of a mod but it shows that it doesn't go unchecked so again, be on the safe side and play nice. It's not that hard, eh?

Pretty much, they list swearing and cheating, and advertising stuff. But then there are people like this too...