That sucks, but then again I think the entire Xbox Live system is pretty much evil. All of the commotion recently with charging for what was originally free, new content and having players purchasing content that was already on the disc seems pretty lame. I think it's a nice idea, but one can sense a lot of greed. They have every right to charge whatever they want, but they're breeding dissatisfaction with some of their business practices.
This was a totally expected and rational move though. Did they just ban your account or your IP address? Can you use a non-modded 360 to log in? Whatever, even an IP ban is almost expected.