Sort of. Sony does the same thing, and has in the past locked out games and peripherals simply because they were not approved. This particular instance may only have affected Xbox, but it's not a localised phenomenon.
Besides, what;s wrong with DRM? We've had anti-piracy laws literally for centuries, but for some reason it's wrong for companies to try to protect the lawful distribution of their products? DRM is an entirely ethical, entirely justified practice. It's ALWAYS been part of the gaming industry, in one form or another, and people shouldn't expect it to go anywhere.
Frankly, i'll take Steam over other models any day. I still can't play Shivering Isles without the workaround Bethesda themselves had to send me. Steam helps protect the rights of game developers (and yes, they DO have rights, it's not ALL about the consumer) while offering easy access to my game library in the process, and facilitating the distribution of a massive indi market that would be smothered by overhead costs in the process.