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It's only libel if it's untrue.  If you cheat the system then you are a cheater.

I think it's good thing.  And if you don't like playing in fair environment then by all mean go to other on-line service like PC (where there are plenty of cheaters and thus totally wreck that environment) or PSN where you don't have to pay.  My feeling is if you are willing to cheat just to boost your gamerscore then you are willing to do a lot more to win so I have no problem if you cheaters move on to other platform.

And yes MS can do this because Live is their system. You are just a subscriber to the service.