Microsoft confirmed the bans but declined to give a specific number instead saying: "We have taken action against a small percentage of consoles have been modified to play pirated game discs. In line with our commitment to combat piracy and support safer and more secure gameplay for the more than 20 million members of our Xbox Live community, we are suspending these modded consoles from Xbox Live."
Certainly 1 million can not be considered a "small percentage," but the software giant may not want the negative publicity of admitting to banning 5 percent of all their paying Xbox Live members.
It is still unclear the exact methods Microsoft uses to detect modified consoles but it appears that "stealth" patching will do you little good. If you want to play games on Xbox Live, you better be buying them.