Spotted this link on on Xbox-scene...
'Although Microsoft has said it will take legal action against any modifications that infringe on its intellectual property, a representative for the software giant said last month that Xbox Live, the upcoming online service for the console, would not be used to detect modified consoles.
Yet language in the initial Xbox Live user agreement appears to allow Microsoft to do exactly that. It states: "Xbox Live may only be accessed with an unmodified, except for Microsoft authorized repairs and upgrades, Xbox video game console. Any attempt to disassemble, decompile, create derivative works of, reverse engineer, modify, further sublicense, distribute or use for other purposes either the hardware or software of this system is strictly prohibited."
The agreement further states: "Microsoft may...retrieve information from the Xbox used to log on to Xbox Live as necessary to operate and protect the security of Xbox Live, and to enforce this Agreement." '