Anything possible on the PC is also possible on the Xbox. The final release of my game will support that type of multiplayer, but levels will most likely only contain 16 or fewer players.
To answer your question: definitely... but people just need to be willing to do some good homebrew. =] Unfortunately, you may not see this, because many of the decent developers are, for reasons I don't understand, working on various ways to run linux *shrugs*