It actually is a problem, unfortunately.
For anybody that cares, I've got Live working correctly while also having a 4627 dash patched progressive and DVDX 1.1. I'm working on refining right now as it uses up a lot of unnecessary space. Here's the process so far:
1. Xbox Live moves most files from the root of C into a "xboxdashdata.xxxxxxxxx" directory where the xxxxxxxx is a specific and needed number. I don't know what generates that number, but changing or removing it breaks the Live dash. So, what you have to do is copy (not move) all the files from that directory into the root again for a dash older than 4920 to work.
2. Do the other basic steps to patch a 4034 or 4627 dash w/progressive and DVDX.
3. I tried making a directory on both e and f and moving all the files there. Then running the dash from that partition/directory. That doesn't work, either.
I've been on Live for a couple days after this, and I don't seem to be banned. My only concern now is that a future Live update will remove those files from the c partition again.
Let me know if any of this helps.