Well, on a hunch I swapped my 80 gig HD out and re-installed the original 10giger that came with my Xbox. Lo and behold, Xbox Live is working again...
So I guess the questions now are:
1. Why isn't the box allowing me to play using the upgraded HD? It's using the original BIOS (modchip turned off), and obviously the HDD is locked.
2. Will I get banned in a few days (hours, minutes, weeks, etc) since it failed to let me connect to Live when using the upgraded HD?
Mysterious. I also seem to recall reading somewhere that an initial Y code of 00C2 meant "major hardware problem"...

Thanks for the reply! Other insights are welcome too. :-)