It is almost indisputable that MS has learned how to detect modchips. The recent XBoxLive experience makes this very clear. I believe that MS is using the XBLive startup to scan the BIOS. And this is may not be a checksum, but a bit-by-bit IMAGE comparison. If it found a modchip, in many cases it put a hidden file on the HDD that will not allow the modded box to connect until after the launch date. (This apparently happened to me).
This is significant, because the Beta software of Motogp and Whacked! expires at the launch date, and the NEW demos must be used. Guess what! The new demos may also have modchip detection and REJECTION built into them. Trying to use the new demos on a modded box may not work. It may require you to disable the modchip. And it may do a periodic and random background check on the BIOS so that if you switch it on after the game has started it will cause the game to hang later. This has been verified by some who could connect through the dashboard but who couldn't play either the new Whacked! or motogp demos. On an unmodded XBox the new Motogp demo works fine.
And this form of protection could be used in all future games. Unlike, a PC, the XBox has some rather sophistocated encryption/decryption buit into the hardware, so the executables are digitally signed and cannot be easily modified unless you know the encryption/decryption key. This means that EVERY new game would have to be individually modified to remove the BIOS check code. On the PC, this is a piece of cake; on the XBox it may be nearly impossible.
The modchip would still allow homebrew software, Linux, modified HDDs, etc. but it would NOT allow playing games from the HDD, or from backup DVD's because the games wouldn't work with a modchip. If this is what MS is doing, piracy on the XBox is just about dead.