The move comes amid this week's release of "Call of Duty: Modern Warfare 2", the mostly highly anticipated Xbox 360 game of the year.
So-called warez copies of the game reportedly showed up on pirate sites prior to its release—a development that may have prompted Microsoft to take action, possibly in concert with or at the behest of Infinity Ward, the games publisher.
"The health of the video game business depends on customers paying for the genuine products and services they receive from manufacturers, retailers, and the third parties that support them," Microsoft said.
Xbox 360 consoles are equipped with Digital Rights Management technologies designed to detect pirated software, but some players have successfully "modded", or modified, their machines to circumvent DRM protections.
It was not immediately clear how Microsoft detected the jury rigging.
Consoles banned from Xbox Live will still function if games are played offline, but players booted from the Xbox Live service will not be able to sign into their accounts or engage other players over the Internet.
A player banned from Xbox Live told the U.K.'s Radio 1 that he was "gutted" and "distraught" by the decision. The player admitted paying an electronics shop more than $100 to modify his Xbox so it could play pirated games.
The Xbox Live gaming service counts more than 20 million members, according to Microsoft. Earlier this year, the company extended the Xbox warranty to cover a problem known as "the red ring of death"
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