Should Sheared Sheep Sprout Surplus Stuff?
Solution 1:
Unfortunately, the Xbox edition is behind in updates from the PC version, it is comparable to version 1.0.1 (PCs are on 1.4.7 as of the time of this post). It seems that for the most recent version on the 360, sheep will not eat grass nor will they grow their wool again.
You'll have to start up a big breeding bay you were talking about for the sheep after all.