Microsoft may have built the system but the firmware hack in itself is a testament to how little control Microsoft has, both from an engineering standpoint and from a security standpoint, of the entire system. What Microsoft engineers saw as a marvelous chain of security was broken by rewriting a single tiny flash ROM.
For Microsoft, they could detect the firmware, software is really the only connection they have to the drive in this situation. However, reading the chip relies on the software written to it complying, so it can be easily spoofed.
In other words, you give way too much credit for detecting modifications. There are plenty of hacks out there that have never been detected and never will, mostly because they remain a secret. Contrary to popular belief a lot of hackers I know out there would rather not see a huge fiasco caused by their software getting leaked out to the masses. Noobs typically jump on it, fuck up the service, then bitch and whine when they get banned or scammed trying to get back on.
But what does make detecting the hack really easy? Well, every single pressed 360 game should be identical, and we're burning backups to a disk that in all respect, is enormously different. The firmware's good, but its no genius. It relies heavily on a good burn, and applies the minor patches that can't be burnt to make the disk "identical" to the system.
That, well, and playing games that are impossible to get, such as retail test disks that would never be given to anyone but strictly known, authorized users. Its still looking like people are getting banned for exactly what they were told not to do; playing outside the norm by playing backups they can't possibly know are good in the first place.
Well, or making an honest error that the Microsoft "Kill-U-Some-Day Ban Flagger 3000" picks up on and sets a death clock on your LiveID.