Of course, what MS did was INCREDIBLY stupid. First, they have allienated a lot of Beta testers, who will now probably be inspired to work dilligently to DEFEAT anything MS tries.
Second, they tipped their hand. Instead of waiting until the actual service had gone live (including the UK) and catching THOUSANDS of modchip users now everybody with a modchip knows to simply disable it until you go live. Now you have really unbalanced the playing field, because games like Motogp allow you to build custom riders and open unlockables OFF-LINE, which can easily be done with a pirated copy of the game. With the new tools coming out, it has been demonstrated how an XBE can be changed to an EXE, dissassembled and edited, and the changed back to an XBE. (See the SEGA GT tutorial for an example so cheating off-line to be used on-line looks like a real possibility.
The NEXT step might be more ominous. Suppose in the future every game uses modchip detection. This could be flagged in a hidden file to your HDD. Go online even with the modchip disabled, BANG!, you are nailed. Games themselves might implement modchip rejection, so that use of backups would be rendered useless (at least until an XBox guru figures out how to defeat it).
However, this should really energize the underground XBox community. Since it was the Beta testers that got shafted, I wish them the greatest of success in defeating MS.