Please quantify "rampant". How likely is the average player to encounter cheaters?

Once you get into certain skill levels in matchmaking it is very common to run into cheaters, depending on the game. If you think about above average lobbies, the number of cheaters will go up until you get to another MMR threshold just due to the fact that the cheats enable people to move up MMR. The average low MMR players will see less, and the top of MMR will see less, but the middle-upper bracket cheating is very, very bad.

Companies are trying to battle this with anti-cheats, heuristics, shadowbanning, etc but it is still noticeable at above-average MMR.

Regularly when doing anything that touches online. And even stuff that doesn't touch "online", these days, normally involves trophies that you can cheat your way to getting.

Who cares about trophies enough to ban grey market controllers?

That's the thing, its not JUST trophies.

I'll agree that if it was ONLY trophies? Sure you might have an argument... but this obviously isn't only about that one thing.

Let me ask this... if trophies are low key "no one cares" (and that's not the case... plenty of people go out of their way to "100%" games and care about those stupid trophies) then what's the solution to allow "bootleg" controllers for only those people? how many people fall into that category? 25%? 15%? 5? 1? That's a low % of people to support a fragmented market - which is what MS would have to do - support a more fragmented market.

I think it's just too simplistic to say "M$ Evil and only wants money and I play online so I'm the only one that matters".

Supporting "grey market" means a more complicated product to support and that complication isn't going to be worth it for such a small subset of players.