the antitrust lawsuit originally filed by unofficial memory card maker Datel, in which Datel claimed that by locking out its cards, Microsoft was being illegally anti-competitive in the field of 'Multiplayer Online Dedicated Gaming Systems" and their accessories. Microsoft's motion to dismiss (here's the PDF link) actually cites one of its biggest rivals, Apple, who fought off another unofficial vendor by claiming that its users (us) had knowingly agreed that by using its products, any aftermarket products had to come from Apple as well. You can't run OS X on any computers not made by Apple, says Microsoft, and so you can't use any non-Microsoft memory cards on your Xbox.
As with most legal filings, the situation is complicated. Datel is also trying to claim that Microsoft has a grip on the console market by claiming that the much better selling Nintendo Wii isn't actually a part of that market, which leaves Microsoft in the weird position of arguing that yes, there are plenty of consoles (including the PSP and even the PlayStation 2) that "have outsold the Xbox 360." And Microsoft also argues that Datel's cheat-enabling memory cards "undermine quality user experience" on Xbox Live, which would also be reason enough to keep them off the system. Interesting arguments, all, but we'll have to see which emerge victorious after a hearing scheduled for March 2 in San Francisco.