Walking away from Microsoft

We bought an xbox for our kids, only $99 and then 2yr contract to get LIVE. We were unable to activate, several phone calls and weeks later we get an email saying we are going to be charged an early termination fee for cancelling... WHAT? we are still trying to get assistance to activate. Then we get an email saying Best Buy showed that we returned it and voided our contract. Then we are told by Microsoft WE HAVE to return it and repurchase. That it is the only way. They cannot activate it. This is the most screwed up company. No one knows what the other one is doing.