In the item's description it clearly states "cheater" which means you aren't supposed to use it period, and I for one wouldn't have. I think Blizz was justified in banning him, although I don't agree with the banning of his guildmates if they weren't on any of runs, but it's not surprising since Blizz has been known to get a little heavy handed on the kinds of issues that exploits their game.

If he was a GM then yes, you ban and fire him for his stupidity. Nothing teaches employee wisdom faster than getting sacked for doing something you know is wrong.