it looks like ms has been banning people for using mod chips on their xbox 360s. they are doing this because, at this time, the only reason to use the 360 mod chips is to play illegal copies of games or remove the region protection so that one can run games from other regions.
this has nothing to do with modding actual games. modding games - as I've written way too many times - is great as long as you're not doing it to cheat. any chance I get, I'll remind everyone that modding is not the same as cheating! if you go on xbox live and play a mod, then hell ya - you're cheating. but that's not what most good modders are doing.
many modders are out there creating cool mods that they enjoy on their own LANs. i.e. when everyone knows that they're playing a mod. they're not trying to level up like a wuss or play an illegal copy of fusion frenzy.