It amazes me how people think that because M$ will loose a few modders from xbox live, they will actually care. What's a few tens of thousands in subscriptions to them? They care about fame and a PR program that shows how "dedicated" they are to "fair play" by not allowing modders to "spoil" their perfect service. An image they will undoubtably push when selling their M$ enabled appliances soon enough.
What about M$ making people buy retail consoles to play live? Does that not in fact increase their profit? --> Actually they lose over $100 for each console sold and they would rather sell games, not consoles, as contradictory as that may sound.
Is the HD code detection real? --> Honestly, it makes sense for them to do more and more to keep their image of perfection and "fair play" and keep collecting information. They check for mod chips, bioses, files, HD contents, etc... and ban you for any one of them, so why would they not check for HD info and possibly ban you?
Did SmartXX detect the problem only to fix it? --> Well, it is hard to say, particulary knowing M$ and possibly since the code seems to have been there for a while. However if they are smart enough to make use of it for PR purposes and did not invent the problem in the first place, then more power to them. Nothing wrong with fixing an existing problem and taking credit for the fix, regardless how old the problem is. If people recall, NitroXX, from the same engineers was one of the the first chips to be "stealth" and not allow detection even if "off" by masking the LPC bus signals. Ingenious indeed. (NO I DO NOT WORK OR SPEAK FOR THEM!

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What is interesting is that you cannot have a modchip/hacked bios active and use the Live service, so anything a modchip/bios can do to block things (much like the Xecuter does) is useless. It's like a catch 22: easy to fix if on, but cant be on to fix it. However, they might have found other means and honestly, I hope they did. I surely do not want to have to remove my 120GB HD once Halo2 comes out

My advice to everyone is not to jump to conclusions, wait till more testing is done and don't automatically assume that because someone has an idea about a fix they invented the problem or it's marketing bullshit. Give them the benefit of the doubt.
If you do not a few spare virgin EEPROMS

than maybe you should not take the plunge and go on Live for a while, otherwise by all means test it out, nothing to loose.
I'm curiousely awaiting the verdict on this one too

All the best to you all!