When the lobbyist in question heard "private server" they just jumped to saying "those are illegal". Perhaps she got confused between private servers offered as part of the game and reverse-engineered community servers? Or she was caught up on thinking about ToS-breaking servers for some reason?

For what it's worth, the mentioned community servers that Microsoft is fighting are those that allow gambling or selling in-game advantages for real money. That's been against Minecraft's ToS since 2014 (pre Microsoft acquisition), but enforcement has always been difficult.

What is really bizarre is the ESA doubling down after the hearing. Maybe they just don't want to admit their vice president got something so wrong in front of the senate?