Okay,... some progress...
First, a little bit of history...
This 360 was brought to me by a customer who had taken it to another fella to mod. The other guy didn't feel comfortable soldering the PassKey in, so the customer called me. He had removed the epoxy (which, I must say, he did a pretty good job - I'm surprised), but the soldering iron never even touched the PCB.
So after your suggestions yesterday, I got a quick chance to mess around with the 360 this morning before heading to work. Your suggestion about powering the 360 on/off until the LED comes on worked. It took about 8 or 9 times. Now it seems the LED comes on everytime.
But it still had the same problem... when inserting an original game or dvd movie, it appeared that the disc wouldn't even spin. I then realized that it must be a problem with the laser. And then I saw it.... the other guy that had the 360 before me must have unplugged the PCB from the dvdrom and forgot to plug the ribbon cable back into the laser! When I installed the PassKey, I had checked to make sure the ribbon cables were plugged back into the PCB - but I didn't check to see if the ribbon cable had been plugged into the laser (I assumed it wouldn't have been - because there wouldn't have been a need to remove the cable from the laser).
So after plugging the ribbon cable into the laser, I got some disc 'spinnage' and laser activity, but Windows wouldn't pick anything up as far as the 'autorun' goes - and I still got the error in FW Toolbox. It looks like the 360 is struggling to read the disc.
My next step is to tear the drive apart and check the laser a little better. Not to get off-topic, but what should the pot settings be for these 0079FL lasers?
What I actually think happened is that the other guy that had the 360 swapped the laser out of the system, and he's probably put a bad laser in and kept the good one for himself. That's the only reason I can see why he would have had to remove the ribbon cable from the laser. I've dealt with this particular guy before, and he's a pretty sketchy dude. He even tried to rip ME off.... knowing who I was and what I did!
I'll keep you guys posted as to how I make out with this 360...