So solution for you:
a) get him banned
b) you leave the game
For me c) sounds better, which is "shake hands and move on".
About the insults, this is a internet game, in internet games people tend to say stuff about mothers. A lot of people do it, even I. Just 5 minutes before reading this post I was playing Quake Live. Somebody said "you suck" after I had killed him and I replied "no, ur mother sucks". Then new round started and we continued to shoot rockets at each other as nothing had happened.
Ragefire seemed like he's good at this game, why would he waste his time on silly vendettas is another case.