I agree, online games get ruined by cheaters. I don't even see why a person would bother cheating as it makes the game no fun with no challenge. But anyways, that doesn't have much relevance to coming up with a free Live service. If ppl are cheating on free Live they could probably also cheat over system link. And actually, if the live service _is_ disected, we may find that the live server is able to verify the game executable (and other files) and make sure it is the original game... then you could ensure there is no cheating.
But now that I see what is already available, it doesn't make too much sense to go through all the trouble of examining the Live traffic, etc, just so you can play online multiplayer games. Although I still think it would be interesting to see it happen. And as it was already said, a Live service would have more features/functionality than just system link. I do think it would be very difficult though.
I am a programmer and have a little experience in reverse engineering, so if anyone is interested, I am willing to help. Although once school starts again in september, I'm going to be 110% busy with that... but will still be able to help occationally.