I too am having difficulty connecting to Live! tonight. It all started about an hour ago.
I haven't connected to Live! in quite some time.. but I was getting prepared to FTP into my XBOX when I bumped the A button while EvoX menu had MS Dashboard selected. 2 seconds later I get the Modified Hardware error....
So, I disconnect my 120GB HDD and put in my ORIGINAL HD.. turned off the mod chip, tried reconnecting and now I am only getting a Network Error. It's suggesting that I check/change settings in my router or configuration.
I figured what the hell... if I am banned, I am banned... might as well call MS and try to find out for certain. The rep I talked to was not very helpful, and didn't seem to be the sharpest knife in the drawer, but he told me there appeared to be something wrong with the network tonight, try again tomorrow. He didn't ask me for anything but my name, so I am pretty certain he never looked up my account.
So many people seem to be having problems connecting tonight (Feb 11 or 12, 2004) maybe the network really is down.