Luckily i have thousands of tinfoil hats, one just for this kind of event.
Anyway, I know it's most likely illegal, but by playing online aren't you technically playing in their space if you're playing within the Live environment? So images uploaded by the camera exist not just within our home, but within the also within the realm of live. The reason I ask is because of the argument that others have that "ms can do whatever they want within the Live environment, such as changing one's gamertag."
I know it's pretty much useless to thimk about, but the thought just occurred to me. Perhaps it's best to ask a legal Phoenix if I really wanted to know the answer instead of pondering it.
Life goes on.