And Booty had a reasonable response, which was it would only be an issue if what they were working on comes in direct competition with what they do at Xbox, i.e. making games. They don't care if you're moonlighting as a go-go dancer, culinary chef, etc. But as an employer if you're making games outside of work as a full time employee, I will be concerned that you are not offering your best ideas and saving them for yourself, leveraging the knowledge from my other employees and proprietary tech i invested money and other resources to build so you can jumpstart your game development, etc. all while collecting a check from me. Of course working on one's own project or startup as a ft employee building a competitive product happens all the time. But being stupid comfortable enough to share and discuss what you're up to with your employer is mental.
The young lady's question was ridiculous and she should be embarrassed as a professional. I really hope she isn't older than 21 because there really is no legitimate excuse otherwise.