The best modchip IMO to play backups and use your system on Xbox Live is the Matrix. You have to flash the modchip with a BIOS when you get the chip, or else it will not work.
Once you have it flashed and aligned properly in mode 1, set the Matrix to mode 3. In order for you to know mode 3 is working properly, it is best to get a colormod BIOS. A colormod BIOS will change the color of the opening intro screen of the 'X'.
So, when you power your Xbox on, you will see the colormod. When you are at the EvolutionX dash or even the MS dash, load a game or a hombrewed program, and when it is running, press the eject button. The original BIOS will load and you will see instead the normal green X logo meaning the original BIOS has loaded and you will be fine to play on Live with original games.
BTW, the new EvolutionX dash will show 'Matrix Inside' at the opening intro screen of your Xbox when it boots, in place of the standard MS logo. When you use mode 3 and the original BIOS is loaded, you will see the MS logo. Again, proving the original BIOS has loaded.