Here are the magic words from our lawyers: on the condition that you follow the rules below ("Rules"), Microsoft grants you a personal, non-exclusive, non-sublicenseable, non-transferable, revocable, limited license for you to use and display Game Content and to create derivative works based upon Game Content, strictly for your personal, noncommercial (except as specifically provided below) use. So long as you can respect these rules, you can use our Game Content to make your Items. We'd like to make that easier to do for fans of our games. We know that people like you – gamers, fans, individuals, and enthusiasts – love our games and sometimes want to use things like gameplay footage, screenshots, music, and other elements of our games ("Game Content") to make things like machinima, videos, and other cool things (your "Item(s)").
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