Been away for some lunch.
I didn't see what happened to the deleted/hidden thread after I posted my reply so in all fairness it could have crossed the boundry. The original question and my reply abided by the rules.
And as for legality:
UK law states that it is legal to modify an item that you purchace to alter its function or operation. The only reason Sony won was because they exerted a huge amount of pressure on various governments, some told them to go jump, but some governments such as France didn't. Sony then sued the chip manufactures through the French courts (and somewhere else I can't remember) thereby financially crippling them and putting them out of business.
In the UK it is still completely legal to modify items you buy and modchips come under this. The whole fuss over it mainly comes from the fact that nothing is clear and the laws don't actually offer a definative black-and-white answer. The Sony ruling is more of an anomly over existing law which actually contradicts it.
M$ have stated they have no intention of 'doing a Sony' so Xbox modchips should be safe.
(edit)
As a semi-sidepoint the modchips are sold on the basis of allowing the playing of import games not on the basis of doing illegal stuff. Just as DVDs are sold on the basis of backing up work or backing up DVDs you already own. In fact that and the whole issues of VCR equipment was the basis for the defence against Sony which has already been covered further up the thread.
(another edit
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But of course that has no relevence to forum rules - which state no discussion of illegal things. If you want no discussion of legal aspects of modchips then that's another rule which you need to put clearly in the FAQ as it isn't covered by the present one.