Ever since Xbox Live came out officially, people who accessed Xbox Live with their modchip on were banned. Live detected the modified BIOS that was loaded, and the Xbox's EEPROM (the unique identity of each Xbox) was banned. However, their Xbox Live account was still safe. So, these banned users got a different EEPROM from various sources, and they were back onto Xbox Live. That has been the way for a long time, and was the way to get banned, unless you used a Xbox Live cheat or was a disruptive gamer.
However, until recently, it seems MS is taking extreme measures to stop people with modified Xboxes from accessing Xbox Live, even with their modchip off. It appears now that MS is banning modders who changed their HD from the way it was when their XBox was stock, to a larger HD or whatever. MS is detecting a change in the HD, and thus banning the Xbox. However, again, the modder's gamertag is fine, just that their Xbox is banned.
News source: Xbox-Scene
