I spoke with my friend at M$ and he heard the following from trustworthy verifiable sources inside:
They HAVE changed the way they look for mod chips in the following ways:
1. Files on the drive. They are doing searches for certain extensions (.xbe's?) which are needed to run games, dashboards, etc. but NOT used in the temp space memory portion. Not the stuff that gets copied to your cache directory during a regular game, but some of the things that are needed for the game, yet not copied locally. If they see these then they assume you've modded your xbox. They probably scan C:\ and E:\, but I don't know if they scan scan F: and G: in retail BIOS mode. Anybody know that? Is there any correlation here with non banned users who have no mod files on C: and E:, while there mods on all on F: and/or G:? Do banned users, stock or upgraded HD, get banned with files on C: or E:?
But then there's this Halo 2 rumor that a flag in a file is set that Halo 2 ran from the hard drive or determine modding, it then sends that info to M$ at next connect... and you're banned. That may have merit but then there's a few people who got banned with other online games without playing Halo2.
2. Serial numbers (eeprom) of the box not matching serial of hard drive
Here's the marriage theory that's pretty much been proven. The only question is WHEN they gathered this data. Did they do it at manufactoring or by collecting data over the last 2 years of frequent online updates? I bet you it's a comination of the two. That's why a few people who had their xbox live account for a long time (since a major update, maybe 2.0?_ on their upgraded Hard Drive, regardless if it was even on the stock hard drive, are not banned.
In my case, my EvoX is on C:\. All my mods are on F:\, but no games. I have a mod chip Alladin 64 with Bios x2 4983. I will be changing my flash to boot evox from F: and will clean up C:\ and E:\. I've had my live account since 11/02. However, my xbox has only been online between those 2 time intervals: 11/02 to 3/02, never connected, 9/04 (got live updates for NFL2K5 and Battlefronts) until early 11/04 before Halo 2 (I knew something would be up, Thanks to my friend.).
Hope that helps.