The Register has some pretty intresting material concerning X-Boxes with mod chips in conjunction with Microsoft's XBox Live service.

He explained that the mod chip is detected when you connect to Xbox Live, and that your machine's ID is then read, and added to a banned list. Even if you remove the mod chip, he said, your machine cannot be unbanned, as it's Microsoft's belief that it can never be seen as trustworthy again.

Read it @ The Register.