I never mute trash talkers on xbl, hell, I welcome it! My friends and I hate using partychat because where's the fun of not talking to your team and the other team? I only mute people with bad mics (cracking, heavy breathing, music in background, etc)
If you mute trash talkers, you can't handle people.
You and your friends are the reason there's no point in talking to randoms
Oh we are very friendly to our random teammates and opposing team. (Like in Halo we drive the warthog to the other team, *honk*, and hope they get in to drive them) But once the other team starts trash talking, well, we tend to also.
A little trash talk is fine but not if it's the only thing coming out of your mouth every second. No one wants to hear that crap. Muting is a great way to stop such childish behavior. They no long have that outlet and attention, and get even more mad because now they just have their crappy gameplay skills.
Competitive shooter I trash talk even when I do horrible.
Fighters I honor the code of respect.
Only mute bad mics and those types.
oh yeah, it depends on what i'm playing. FPS/Sports games are made for trash talking, but other online games like fighting, wrestling, racing, puzzle, etc. I've noticed are more about having fun rather than rubbing it in.