The Virtual Xbox checksums the XBOXDASH.XBE making sure it is valid, then reads the fonts, making sure that the default.xbe they point to is valid and properly signed, then reads the default.xbe to find the default dashboard that is loaded, and makes sure it is present.
Once this check has been complete, the entire setup is loaded into a Virtual Dynamic Disk, much like VM Ware Virtual Hard Drive, then a Kernal startup is issued, and the kernal will either return SUCCESS 0 or FAIL ##.
Where as ## would be a valid xbox error number.
Keep in mind that this is in no way a garentee, more of a safety precaution.