I'm guessing chunk loading errors and ambiance weren't taken into consideration. It is possible for that to happen too. I don't really know much about what happened, but it's not uncommon for players to dig down 20 or so blocks to start mining. Either way, this is entirely sgt's calling on this one. I'm assuming he is placing his interests in the fairness of other players by preventing x-ray users from gathering rarer things.
Me and SGT did some thorough investigating regarding this ban. First of all, he claimed to have found the dungeon previously, however there was no evidence of this whatsoever, no torches, or any evidence of any other blocks placed/broken in the area. Second, he claims to have noted the coords on his Laptop, but when pressed about the coords he couldn't supply them, which leads me to believe this is false. Third, He claims to have seen the cobble after mining straight down, but after checking where he mined down, there's no possible way he could have seen the cobble, the dungeon was at least 2-3 blocks away.