. Don't blame the people that get f'd with. It's Microsofts fault for allowing them the opportunity to do this.
You're saying its MS' fault that someone picked a weak password? Sure, MS can make the requirements stricter, all that does is reduce the number of possible passwords making it easier to generate a dictionary.
If a console fails then they have serial numbers on the hardware that they can easily get your console ID off of while it is being repaired, or it can be read right off of the back of console over the phone. Not to mention you can download your gamertag info directly to any storage device to avoid the problem altogether.
It gets complicated. Think about what happens if you sell your console. If your XBL account has no email tied to it, only a console id, then what? What about the guy that bought a used xbox that sends it in for repair. Sure you can download your gamertag, what about the poor sap that didn't before his console died. Maybe this isn't an issue for xbox, but on PS3's you can logon with your account on another PS3, which is probably pretty common on households with more than one. These things may be overcome, but it ends up being much more costly and time consuming for everyone.
.I also reported theft to paypal and they communicated that to Microsoft. Maybe that helped put some pressure on them to get things done more quickly. Not everyone has that option unfortunately.
Yup, that's what everyone should be doing, or reporting to their credit card company. If you get points from those cards, you might be out of luck though.