Consumer Protection Law
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Amazon is very good regarding their customer service. Reading a book on kindle and then returning it is like going to Barnes and Nobel bookstore and buying a book, reading it and then returning it. That is not allowed and it is very clearly described in the Amazon terms of service I am afraid. Amazon offers many free books and also has a library service, where you can read the book and return it when done. However, their policy does state that the return of books that were read can be seen as a violation of their policy.
You need to contact them again and speak to the supervisor since they told you they would reactivate your account, but when they do (and most times they will in our experience) you cannot continue to order and constantly return or they will shut you down again permanently this time I am afraid.
The problem is their terms of service allow them to do so and if you read those terms which are provided to everyone, you can see it in those terms of service that they "reserve the right to cancel an account at any time."