The point is that if Microsoft does anything illegal with XBO--or Sony with PS4--or Valve with Steam--or any corporation from now on with any service they run (imagine, for example, that they illegally charge you more sales tax than they're supposed to; imagine, for example, that they have a software glitch that illegally eats your money when you go to buy something without giving you the content you bought; imagine, for example, that they double bill you for Live; imagine, for example, that they falsely advertise the price or content of something--and I'm not saying they are going to do any of those things), you would have to sue them individually after going through mandated arbitrartion. This will first and foremost make it not worth your time, and second of all ensure that they are never punished for doing wrong, merely forced to make it square if that.
They can't do what you just said, but they can force you to go to arbitration first (they get to appoint the arbitrator, as well) and they can force you to make sure any arbitration or subsequent lawsuit is done by you individually, not acting with other people who have also been harmed. This means that you have to waste a lot of your time and money for a harm that is likely going to be fairly small. Class action lawsuits are a way to tip the balance because each individual person can get their remedy without having to invest all the time and money required to go through the process.