UPDATE:
After performing what i described in the 3/31/2005 post, i am relieved to say that i now have a 320gb xbox that so far has worked 100% on live for the past 4 days. I believe what orignally got me banned was the existence of my original gamertag on the xbox after i had installed the 320gb drive and reflashed with a new eeprom. Although I never logged into Live through my gamertag, I did use the Connection Status utility in the Network Settings menu twice to check my WXYZ codes to see if I had been banned from the install. The first time i ran the utility, it connected. I didnt write down the XYZ codes tho. The second time i used the utility, which was less than 24 hours after doing it the first time, it gave me the Modified error and my Y code changed to 00A8-6800. I can only guess that the utility somehow auto-logs in using either an existing Live account installed on the system or some other type of diagnostics login. Either way, i got banned with the chip off, new hdd, new eeprom. Having cancelled that account and registered with another gamertag (and flashing with a 2nd eeprom and installing a different 320gb hdd), Live now works as it should.
WXYZ Codes are now:
W: 0000-000b
X: 0000-000d
Y: 00a8-4800
Z: 0000-0000
When flashing with the 2nd eeprom, i noticed that it had a dvd kit zone of 2 and had the ms dash time zone set to Berlin... which was probably the location of its previous owner. I used ConfigMagic and set the dvd kit zone value to 1. Im not sure if this did anything, since when i flashed with the first eeprom the dvd kit zone was set to 0 and automatically updated to 1 after i played a dvd using a region 1 ms dvd playback kit. I think all that mattered was that it was a v1.0 ntsc eeprom to match my hardware.
Another thing i noticed was that my Phantasy Star Online character data also got nuked. Come to find out that PSO also marries itself to your eeprom. The game sees the eeprom changeover as PSO data corruption and it forces you to reinitialize your PSO hdd data by deleting the existing data. In effect, you lose everything. Turning off the xbox before doing the reinitialization, I reflashed back to my original eeprom and successfully booted up the game. I then transfered my character to a mem card in hopes of importing it back with the new eeprom. No such luck however. I am now limited to only using my old character in split-screen multiplayer. I guess its all good though, my guy was only at lvl 22.
On a stranger note, I also noticed that after i got the famous "Modified Console" message, i tried to back up some game saves using the MS dash. I scrolled all the way down to the bottom where the Xbox Live gamertag data is usually stored, only to find out that there was nothing there anymore! What's more, none of my memory cards (to which i had copied my gamertag to previously) listed my old gamertag when i viewed their contents through the ms dash. After i completed the new account creation from the 3/31 post, the Xbox Live section was re-added back to the game save list and my new gamertag was visible on the hdd, as well as my old gamertag on the memory cards. Is this odd or what? Does getting your xbox banned somehow force-remove or force-hide all traces of your old gamertag?
Anyhow the system is working beautifully now. Major thanks to Lord Magnus for his superb posts and to Zodiak for the eeproms.