I've had a modded Xbox for a few years now, and never had Xbox Live.
Now, with Halo 2, I decided to give LIVE a chance.
As long as my modchip was turned OFF, LIVE worked great.
It's been over a month now, and I've never had a problem.

Yesterday, I forgot the modchip was still ON when I signed in to LIVE.
I noticed within ~20 seconds of the connection failure, and quickly turned off the xbox.
Now, with the chip OFF again, when I try to connect to LIVE I get the following error message:

That account is banned for life, have to create a new account with different info, and probably a different xbox, i dont know if they do a hardware signature as part of their registration.

Best recomendations for modded xboxs is to get two of them. One modded, on one not modded to use with xbox live.

They're still $200 CDN.
Maybe I can find one used somewhere...

If you found a new XBOX or PS2 for that matter at this time of year, count yourself lucky. There is going to be a shortage for both this season. Here in Columbus, all the stores are already sold out of PS2's.

Here in Manitoba, Canada, there's about a gazillion of each at every Future Shop and Best Buy.

dude, the xbox live accoutn is not banned for life... only the xbox itself... or actyually, i shgould say, the xbox EEPROM. all u need to do is get a n eeprom from an another xbox and swap it with your current xbox's eeprom.