Christ. Seriously? That is the definition of fraud - it doesn't matter whether it's on Wikipedia or a courtroom.
Actual fraud is defined in bankruptcy as “any deceit, artifice, trick, or design involving direct and active operation of the mind, used to circumvent and cheat another--something said, done, or omitted with the design of perpetrating what is known to be a cheat or deception.” Cheeks v. Taylor (In re Taylor), 2009 Bankr. LEXIS 3336 (Bankr. D. Md. Oct. 1, 2009)
To constitute fraud the misrepresentation or omission must be made knowingly and intentionally, not as a result of mistake or accident, or in negligent disregard of its truth or falsity. Also, the plaintiff must prove that the defendant intended for the plaintiff to rely upon the misrepresentation and/or omission; that the plaintiff did in fact rely upon the misrepresentation and/or omission; and that the plaintiff suffered injury or damage as a result of the fraud. Damages may include punitive damages as a punishment or public example due to the malicious nature of the fraud.
In my mind, that's pretty clear. Purposefully misrepresenting your location or your console's location in order to receive something of value for free is fraud. Just because MS did nothing about it before doesn't mean that they gave up their legal standing to do so. They retain that right, because you accepted, and continue to accept, by logging in and utilizing XBL, the ToS that they have laid out.
It's the same reason that there will be no bans, for, say, downloading Ben 10 when it was free for a day. I used my own account, which is verified in the US, on a US console, without any lies or deception, to get the license for a game they had marked as free. I didn't have to do something additional that purposefully misrepresented who I was or where I was to receive it. Now if I had been a resident of France, on a French Xbox and had signed up for a new US account by purposefully misrepresenting my location, it would have been fraud. I would have been misrepresenting information with the intent that the plaintiff would rely on that information and I would get a benefit from it - a free game, which, had I NOT made a knowing misrepresentation, would not have been available to me.