Trev, you are missing the point. It starts with parenting. Period. Its not Microsoft's responsibility to police every single person, nor should they have to. And it does matter, what rating the game is. That's like saying you're going to go to an R rated movie and then become outraged when a character swears/makes a racial comment but you're OK with the gory kill scene.
And why is it that everyone is only focusing on blacks? How about, everytime I play during the day, I have to listen to some European person go on and on about how Americans are pigs and how much they hate America etc. or I have to listen to black people go on about how they hate white people etc. It is always a two-way street.
I know the guilty parties are usually underage, because alot of people that play games are underage. And alot of kids are ignorant. When you hear the N word 35 times within a minute and a half, its usually some little 15 year old kid who thinks he's hilarious/cool for saying it, and it is only because he is hiding behind the internet. I can assure you 95% of these people would NEVER say anything remotely racist in reality. Alot of people aren't even racist that exhibit this behavior, its more of a "pay attention to me" type of thing, which further lets me know these are younger children slurring and swearing constantly.
You also have to look at like this. It only takes on match to start a fire. One does it, they all do it. The fact that you compare these children to the KKK shows me that you don't understand that alot of this is just verbal garbage that has no meaning or merit. They want attention, and they're getting it obviously. Its called negative reinforcement. The fact that these people are getting national recognition is only going to add fuel to the fire.