Xbox LIVE was previously known to censor or even ban gamers who indicate or even hint they were of an untraditional sexually orientation. This could either be from listing it in user profile or using a slang term in a tag. Of course every time this happened to an avid Internet user, it made headlines across the web, smearing Microsoft’s good name.
Gamers can now be any race, nationality, religion, or sexual orientation they choose. This applies to Gamertags and profiles, but there’s probably still a some moderators looking out for truly offensive violations. Surely a few clean tags will be flagged even after this update, although the announcement indicates that a stronger enforcement policy has been implemented as well to prevent misuse.
At least Microsoft is trying even if this update comes way too late in the game. Gamers have dealt with this issue for years.