No, it's definitely possible, it's just a very old softmod.
Your dash is at E:\dashboard\default.xbe. To upgrade to XBMC here is what you do:
Get hold of the latest XBMC (start at XBMC4Xbox for a discussion of the latest stable version), and the latest T3CH version of XBMC. You only need the \_tools\ directory from the T3CH build.
Install XBMC as an application, in E:\Apps\XBMC\. Get it running properly, make sure you're happy with the version you choose.
Next, get hold of the latest UnleashX (the version that comes with Krayzie is a little old - the latest version is UnleashX_0_39_0528A.rar). Install it in E:\Dash\UnleashX\. This is so you have an alternate dash, for example to use when you want to manually upgrade XBMC in the future.
Next, take the SHORTCUT by TEAM XBMC files from the T3CH \_tools\ directory. Rename the xbe file to default.xbe, rename the config file to default.cfg, and edit default.cfg to point to E:\Apps\XBMC\default.xbe. Put both files in E:\Temp\ and run E:\Temp\default.xbe from your Xbox file manager, to make sure that it launches XBMC properly.
Once the shortcut is working, copy both shortcut files (default.xbe and default.cfg) from E:\Temp\ to E:\Dashboard\, replacing the existing default.xbe. Next time you boot you will have XBMC as your dash.