Oh mercy me, Microsoft bans modified Xbox 360s (not user accounts) from Xbox Live post-May 2007 update! Zero tolerance policy! The hive-mind has spoken! Cats and dogs not allowed to live together! It's the end of innovation as we know it!
Or is it?
A console jacked into an Ethernet hub or a wireless router attached to a broadband connection is just another computer on the network. It's hardware that runs software that lets you do stuff and--if you so choose--do some of that stuff with other people online. It's also a closed system, or to put that another way, it depends upon everyone's hardware and software speaking the same language and adhering to some fairly strict rules. If you start tinkering with the underlying architecture of the system, you risk unhinging something not just "locally," but "globally" as well. I can already anticipate the cynical response to this next point, but for better or worse, it's consensual standards that allow our computers to talk to each other.
To put that another way, remember Token Ring? IBM's alternative to Ethernet (like Betamax to VHS)? The Token Ring cards I encountered could operate at two speeds: 4 or 16 Mbps, and instead of sending packets down a line to sidewise stations, Token Ring packets circled in "rings" which ran at either of those two speeds, but, crucially, only one at a time...the hybrid compatibility we enjoy with 10/100/1000 Ethernet cards was anathema to IBM's deterministic architecture. Plug a Token Ring card set to 4 Mbps into a ring running at 16 Mbps (or vice versa) and you'd get a "beacon," i.e. a panic "pulse" that essentially took the ring and every other station on it straight to hades.
It's a crude metaphor for how things can go kablooey in easily violable circumstances. And while a mutant Xbox 360 might not as easily louse up a service like Xbox Live, the potential's certainly there, and even with one in a million odds, the cost in time and labor to Microsoft to hunt and fix those kinds of issues...let's just say that while I'm not exactly fond of quite a few of Microsoft's policies, this is one I can get behind 100%. Besides, it's their online service, and whether the real reason's just to kneecap pirates or no, you can hardly fault them for battening down the hatches.
The original note from Gamerscoreblog, "the inside scoop from Microsoft Xbox and Game employees":
As part of our commitment to our members, we do not allow people that we have detected to have modified their console to connect to LIVE. This is an important part of our efforts to try and maintain a fair gaming environment for the large majority of gamers that play by the rules. This topic is more important than ever given the recent release of the Halo 3 beta. As a result, some consumers that try to login to LIVE who we detect have illegally modified their console will get an error code (Status Code: Z: 8015 - 190D) when trying to connect to the service. These users will not have their account automatically banned from LIVE, but they will no longer be able to access the service from the console they modified.
And the screen you'll see if you're naughty:
You bought it so its your to do with as you see fit so why dose microsoft have anything to say about it?
You do have the right to do with it as you see fit, as you said you bought it its yours. Howver, just like with every other right you have, it has limits. Namely your right to modify your Xbox should not interfere with everyone elses right to use thier Xbox in any way, shape, or form including the xbox live service. Heres a good example: You have the right to swing your fists in any direction at anytime you so choose; however, your right to do so stops where someone elses nose begins. But again this is my opinion.