My son and I went to this kid's house tonight and my son chatted with him and his dad and returned the game.
Apparently, the kid said he could borrow the game a couple of weeks ago... but he didn't borrow it then. And my son took that as an open invitation to take it the last time he was over there.
That would have been fine, except he told me the lie about his friend "giving" him his "extra" copy and had every intention of keeping it.
So... I've currently locked the XBOX down with permissions... and my seven year old loves playing Minecraft in offline creative mode... so, I think the idea of it being here as a reminder to him. Perhaps.
All of his game play and friends have been deleted. I may let him earn it back at a later date... but as it is, he is grounded from all technology for 3 months. He will be doing lots of reading... and we will be spending more time outdoors.
Thanks for the all of the thought-provoking comments, folks. I appreciate it.