To be honest, I don't have any sympathy for them because they modded their consoles period, while knowing full well what that could entail. If MS pulled this stunt without ever addressing the modding issue previously, I'd be jumping all over them, but as it apparently was in black-and-white the whole time, it's very much an at-your-own-risk scenario. Sucks for them that MS finally decided to take action now, but they're the ones who took that action in the first place.
And like I said before, if these people want to keep playing multiplayer in any sort of significant numbers, or earning achievements, or doing any of the other tasks that Live allows, they're going to have to get another console, which I can see many of them doing. Maybe there will be some holdouts, but not in numbers to make MS bat an eye. That other 95% of 360 owners who weren't banned won't be affected either way, since they presumably don't care about modding anyway.