that last statement is perfectly true....if you don't live in the US. getting into a debate about laws isn't really going to work in a forum that touches so many different countries because each one obviously has a slightly different set of laws.
if you ARE from the US, then you apperantly haven't heard of the digital millenium copyright act (a VERY questionable law which actually violates several existing laws...but hey, that's what happens when big corporations can buy votes in the government). since modding your xbox would allow you to use illegally copied games, it is illegal to mod it, even if you had no intention of using illegally copied games. also the "illegally copied games" part doesn't even matter because technically, under the dmca, you can't copy your games even if you own them. so anything that would allow you to play backup games is illegal. welcome to america, land of the....expensive? haha
edit: don't take that as me being against modding (i think that you should be allowed to)....i'm just stating the facts