Stephen Toulouse, Xbox Live's head of policy and enforcement, says that the company is looking for ways to allow gamers to express their sexual orientation without being exposed possible negativity.
Once Microsoft figures out how to do this properly, the change will be implemented.
"The overall policy we have today is that the expression of sexual orientation in a Gamertag or text field is not allowed," he told Kotaku. "That doesn't matter what the orientation is. We recognize that the policy is not just, that some communities feel like they are being targeted. Our challenge is how to do that. We are working on that now.
"I don't know what shape or form it will take, but yes we will go back and figure out how to make it work."
Microsoft found that 98 percent of those who used the word "gay" on Live did so in a pejorative manner.
Toulouse will be present at the EA hosted talk today,sponsored by GLADD.