The Xbox Live Code of Conduct has been updated to allow gay people to display sexual orientation in gamertags.
Words allowed are "Lesbian", "Gay", "Bi", "Transgender" and "Straight". "Other terms regarding relationship orientation are not allowed," read the updated COC.
An explanation of the new rules may only be available in English, but the changes are effective worldwide. Localisation of both rules and allowed terms are something Microsoft is working on.
"Since the launch of Xbox Live - the 360 version of it - in 2005, the people who were in charge of policy (I wasn't in charge then) made a decision, that they made with good intentions, and that was to cut down on insults and misuse and bad speech - they decided that the expression of your relationship orientation, your sexual orientation, is not going to be allowed in gamertags or profiles," Stephen Tolouse, director or policy and enforcement on Xbox Live, explained to Larry "Major Nelson" Hryb.
"Now, they did make a provision that you could certainly proclaim it in voice chat or you could provide context for why you were doing that. But they decided that for gamertags and profiles that wasn't allowed. And it wasn't allowed no matter what your orientation was.
"As our service has grown - spectacularly, I might add - and become much more social, it's not just about games any more: it's about movies, it's about sharing experiences with your friends. We certainly see now through feedback from our customer base and community that people want to be able to express that stuff," he added.
MS began re-examining gay naming policy on Xbox Live this time last year. Unsurprisingly, the archaic Code of Conduct caused plenty of highly publicised controversy.
On why Microsoft approved the words it did, Tolouse explained: "People are kind of curious why we have a list of approved terms to express this. One of the reasons is that so many of the other terms can be used as insults or are frowned upon by a variety of different people, so we thought it would be best to pick a group of words that we would let people know were OK for that expression and anything else we discourage their use.
"And we absolutely will take action if there's any use of those unapproved terms for hate speech. But we wanted to provide those guides.
"We want everyone to feel free to express themselves in positive ways - again I want to stress that negative speech and hate speech is not going to be allowed. But hey, we heard you and we made a change and I'm very very happy about that," he said.