It used to be against the rules to use the words gay, straight, lesbian, bi, or transgender in your Xbox Live gamertag. That's just changed. From Xbox Live General Manager Marc Whitten:

I'd like to announce an update to the Xbox LIVE Terms of Use and Code of Conduct which will allow our members to more freely express their race, nationality, religion and sexual orientation in Gamertags and profiles. Under our previous policy, some of these expressions of self-identification were not allowed in Gamertags or profiles to prevent the use of these terms as insults or slurs. However we have since heard feedback from our customers that while the spirit of this approach was genuine, it inadvertently excluded a part of our Xbox LIVE community. This update also comes hand-in-hand with increased stringency and enforcement to prevent the misuse of these terms.

While I understand the rationale for doing this, I've got a bad feeling for how it's going to turn out. I get a lot of guff for my gamertag because it includes my last name, which leads folks to think I'm a chick. If I get hassled for a perceived reference to gender, I can only imagine how disruptive it's going to be when gamertags include references to sexuality. Hopefully Xbox Live's new permissiveness will go hand-in-hand with a new willingness to crackdown on reports of abusive behavior.