I recently instaled a aladdin live chip in my xbox. I made sure that the auto sign in for xbox live was off, I didnt change my harddrive and the mod chip was off when i went online. I went on for about 15 mins and went to bed. Next day message comes up saying the xbox could not connect to xbox live because the xbox may have been modified. I just dont know how i was banned.
if you had a game that supported auto-sign on i.e. any game thats come out the last year or so, then it doesnt get over-ridden by the chip.