The only legal avenue that may be possible is attacking Microsoft's interest in the user purchased console itself. Though that requires a concession in part that Microsoft is allowed to ban people on Live whenever the hell it feels like it. I can envision an argument that goes something like this. "Microsoft is fully within its rights to ban users from participating in its ongoing online service. But the extent of the ban in this case goes beyond that and cripples the console's ability to function in ways completely separate from the online component thus diminishing the value of the machine by causing irreparable damage to it."
The difficulty with this argument is that it would require a direct attack on the idea of a hardware license agreement and would in fact be implicitly arguing that the purchaser actually owns the machine and as such Microsoft, while allowed to restrict users from accessing an ongoing online service via that machine, cannot actually destroy the machine which is the private property of the consumer. It would have to be an argument comparing it to a situation like, oh, a message board not only banning you from posting but actually screwing up your computer in the process. Granted, this kind of thing with licenses is controversial and by no means set in stone either way. But a lawsuit would require more than just the standard "waah waah, u lamerz!"
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