Well I definitely don't think that any developer ever thought that the Xbox would be capable of running, or even had the vision for, a program such as
XboxMediaCenter.
Because Microsoft's
Xbox Music Mixer game/program seriously sucks.
So I think that the coders/hackers of the Xbox have really put the Xbox to a lot more use than would have been thought by Microsoft and game developers starting out.
As far as the engineers hacking the system... well... they wouldn't have to... it's legal for them to use their purchased Xbox Development Kit to program whatever, and I don't think they'd ever really want to or need to change anything such as the bios.
But being that the Xbox is basically an IBM PC with a 0.733 Ghz Processor with an NVidia GPU, it's blatantly obvious that it is capable of a lot. I guess the imagination is kinda the limit with what it's capable of... well as long as the imagination stays within the capabilities of the aforementioned specs.
That's my 2 cents anyways...