I agree that MS may actually be partially supporting a modified Xbox 360.
It is true that MS took heavy losses on the original xbox console's hardware and the only profit was in the purchase of software. However, after reading the recent analysis of the component and manufacturing cost of the Xbox 360, MS obviously learned from their mistakes and is making a profit on this device.
Right now, what is even more important to MS than profit is market share - especially vs Sony - and they have at least a several months' head start on the PS3. MS needs to put consoles in the hands of as many people as possible before the release of the PS3 - thus the every10minutes competition and the Canadian counterpart. MS has given away thousands of Xbox 360s in the hopes that people will play on their friends' unit and gotta have one too. The alleged shortage of units on release day, whether true or false, still has created an even bigger desire to get a 360.
A strong revenue source for the MS entertainment division with the xbox has been Xbox Live. Thus, the need for protection of their network has been paramount. With all of the xbox hacks, no one has yet to come up with a consistent way to play Xbox Live on a modded xbox playing the game from the hard drive. Sure, you can do it for a night - and then you are banned. Xbox Live provides an unparalleled online gaming experience and also is a major source of continually renewable cash flow for MS with little overhead.
Sorry this post is long, but I suspect that MS, while of course wanting to truly protect their intellectual property from rampant piracy, may be partially "sleeping with the enemy" on allowing modding a 360. Only time will tell.
As for me, I won't be buying a 360 until (1) a modchip comes out allowing me to play all media types/codecs or (2) Halo 3 comes out...whichever comes first.