Well i took a look at the 4978 bios, and it appears that they have simply embedded an ftpd xbe in the kernel image. (similar to how xbeboot can have an embedded initrd and such). When it wants to run the ftp server, it first maps all the partitions to the appropriate drives, then reads the xbe out of the kernel memory space and launches it.
That's why it is so big.
It includes all the libs necessary for the directx support and network support etc.
Here's some debug statements from the bios if you are interested:
"*** Trying to launch miniFtpd ***n"
"Xbox memory image loaded: %Zn"
'This XBE was linked with %8.8s.LIB version %d.%02d.%d.%02d%s
'XBE loading successful... now running the XBE!'
While it is a somewhat clever solution, I'm disappointed that the ftp server isn't truly a function of the bios. You could embed something like the evox dashboard in a similar fashion pretty easily.
It would be about 10000% times cooler if they had the ethernet driver / tcp-ip stack / and ftpd directly implemented in the bios, but hey, it's not an easy task. Since they don't care about legal issues, it might be easier for them as they could steal stuff from the existing xdk net libs, rather then having to reverse the driver and porting a tcp/ip stack.
Anyhow, I hope this isn't indicative of the types of innovations they are going to have in the future.