how do i report a user for racist remarks - and does microsoft actually act on complaints 

If that person is still your recent players list, click on their gamertag and use the file complaint option for abusive/obscene speech.

I can assure that MS does take complaints seriously, and it will be investigated (they have their ways.....big brother kinda stuff!!) and action will be taken if they are found guilty.

It might not be a bad idea to block communications with the person, so that in future if you ever run into them again, you wont be able to hear their stupidity.

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Madame Dork’s Groupie #001
Odessa Rocks!

The Policy Enforcement Team does investigate complaints. Just look over in the Account Suspension Forums

Also, this explains some of the process:

Stepto Interview Article

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