A softmod that's based on nkpatcher and a version of the dash that you already have on your xbox (say, if your box happened to come with one of the exploitable dashes, and an old kernel that allows it to run) is certainly legal. A modchip with a downloaded bios image that's a hacked copy of the MS bios is certainly illegal (illegal distribution of a derived copyrighted work).
There's a huge grey area in between, though (e.g. a softmod that's made from a dash version you never had on your xbox, or a chip that runs a bios image that you modified yourself after dumping your own copy of the MS bios from your box).
So, it's maybe not as clear as all that (IMG:
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