The Digital Millennium Copyright Act (DMCA) makes reverse-engineering and bypassing security measures illegal, even on your own box. It's the same law that makes backing up a DVD illegal. There are a couple allowances in the law, such as for compatibility and research, but they are largely ignored by the deep-pocket companies who will go after you if you decide to tinker.
I wasn't reading it too clearly. I had at first thought they were just changing certain things in the X-Box, but if they are violating the intellectual property rights of others then that to me, is a capitol offense =o)
Note the supreme court has not taken up this issue of legality of "fair use" of copying legit DVD that are brought for personal use. The supreme court have only ruled on commerical copying, which is priracy.
It will be interesting to see if the supreme court is insane enough to declare everyone under thiry years old a born felon on this issue considering the RIAA/MPAA has a "guilty and never proven innocent" stance on the subject.