Microsoft has updated the Xbox Live Code of Conduct to allow gay, lesbian and transgender expressions on 360 profiles. 360 players can now express their sexual orientation in profiles or Gamertags as “Gay,” “Lesbian,” “Bi,” Transgender,” or “Straight.”

From ComputerandVideoGames.com:

“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,” Xbox Live boss, Marc Whitten wrote on the official site.

“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.”

The change came after a meeting with the Gay and Lesbian Alliance Against Defamation, which stemmed from an incident involving the ban of an “offensive” lesbian who “says she was harassed by other players and later suspended from the service for noting her sexual preference in her Xbox Live profile.”