Cnet has seen the EULA sent out to Live! beta testers in which Microsoft outlines what you can and can't do with an XBox. The Vole states explicitly that it 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."
The agreement 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."
Further, a Vole told Cnet: "Microsoft reserves the right to take legal action against anyone who tries to modify the Xbox for the purpose violating the intellectual property of our partners or of Microsoft."
Modders, though, will be undeterred, we reckon. The XBox linux project has already posted version 1 of its XboxLinux and carries a tutorial on how to install how to install SuSE Linux 8 on an Xbox.
Over at xboxhacker.net, founder Dan Johnson, reckons modders will simply turn off their mod chips when using Live!, until a more devious method is developed.
Here's the Cnet piece.