"Microsoft stated that the Xbox 360 was going to be a gaming console that is not able to be hacked but it looks like someone has just taken the first step with the help of Microsoft.

Sources say that a group calling themselves Team Pi have discovered a vulnerability in the Xbox 360, or more specifically in the kiosk CD being used in retailers displays. It seems that though the executable on
the disk is signed, the other media on the disk is not signed allowing someone to swap the Project Gotham Racing 3 demo video with a WMV-HD rip of a full length movie.

This is far from being a complete hack of the Xbox 360 but it is one little step closer to a full hack. If someone with the skills and time puts their mind and talent to it they might find a way to crack open games. They could also create more complex programs such as media players, Internet browsers, and software emulators for older console games. If the games can be cracked, it may even be possible to copy them for use on the Xbox 360.

Admittedly this is not a huge step to completely hacking the Xbox 360, but it is another step in that direction. Microsoft has not yet returned a request for comment." [link]