Yes, the C:\ you see is the shadow c:\.
No, you can't go on Live! with this, because the kernel is patched, and in a modded state, which will result i a ban. If you set up your live acct when in a retail state, then apply the exploit. you could go on live via cold-booting retail games (powering on with the game in the machine).
The pbl loads, replacing the nkpatcher that loads the shadow c:, thus making the shadow c: "disapear".