From Microsoft's perspective they have no reason to unban him; he can offer no proof that he obtained it legitimately, and he has stated that he will not divulge where he got it to protect the store. So from Microsoft's perspective he either stole it (which to be clear I don't think anyone here actually thinks he did), or if not he is willingly protecting the store that broke their agreement/contract with Microsoft which would make the store subject to fines, possible legal action, etc. From their perspective this isn't an innocuous issue of someone happening to get the game early at Walmart or something like that, because of the fact he is protecting the store because he knows they should not have sold it to him and they will get in trouble, and the retailer could face possible legal ramifications.
It's a shitty situation, but since he knew going in he shouldn't have been able to get the copy he should have stayed offline :/. Frankie is a good guy who has helped people out on GAF in the past, I think what may have happened here was he assumed it wouldn't be an issue getting unbanned and overstepped his bounds in saying he would get it taken care of, and then the people who would actually make that decision said "lol no." And regardless of where you fall on this one, the OP going back out and buying another 360 and products completely vindicates Microsoft's position on this, and was about the worst thing to do in this situation.