No, you are loosing sight of recent history:
It would have been a simple matter for M-icrosoft to "protect their investment" without resorting to these rather draconian methods.
Indeed it's already hurting them and this will only increase over time, as bourne out by everyone with unmodded (some could be lying though) xboxes on the XBLive forums.
No, this is simply a second volley at mod chips designed to circumvent bad press and lawsuits, with their EULA ace in the hole in case anyone objects.
Hopefully people WILL screw up their security attempts and force them to back down to something far more reasonable.
It HAS happened in the past when companies complained of the vast problems introduced by their crazy activation scheme for WindowsXP.
Likewise the same thing must happen with the Xbox or MS will succeed in locking up the consoles in a rather unreasonable and unfair manner.
The desire to drop local lan support alone is a big case in point.
M-icrosoft -NEVER- protects the consumer's interest. Companies only do so when there is a monetary incentive to do so. Such is the nature of the beast.
If they were intent on doing some such thing, while retaining their own security interests in tact, many, many, many simple secondary measures were available to them that would satisfy both camps.
Had they done something like this, we would all have user created programs running on unmodded Xboxes, with a DES type chip to handle copy protection in games.
M-icrosoft PURPOSELY avoided this simply because of the bottom line and FEAR!
Fear that DELL, GATEWAY, COMPAQ/HP and others would do something drastic if their Xbox was percieved to be a type of PC, in direct competition.