Seeing as Microsoft is stepping up with new protection (AP2.5, XGD3 and a new upcoming Dash), the best thing you can do right now is to wait. If you really need XBL, there's only one safe way: Stay legit, don't fiddle around with your box. Simple as that.
If you still want to mod it, here are your answers:
1) As mentioned above, they ban the whole console. So once you're modded in any way, you have to life with the risk of getting banned.
NO MOD IS 100% SAFE! Microsoft constantly changes things, you could be banned within a day, eventhough you did everything right to be as safe as possible.
EVEN IF YOU ONLY PLAY LEGIT GAMES! ONCE YOU'RE MODDED, YOU CAN BE BANNED AT ANY TIME! Keep this in mind.
2) Now, the tricky question: The Modding. This ain't an easy question, basicly there are two solutions:
- Flashing: Flash the drive of your box with a new firmware. Until today, probably the most "safe" way. But, with the recent new protections, also the most annoying one. To be safe, you need to buy a special burner and flash it, only to burn your games the safest way. You'll also need a specific brand of DVDs for this. Also, you'll need to verify each game with ABGX360, and because Microsoft can add new checks with updates, you may need to repatch/reburn those games with each update. Not to mention that you need to open your Xbox and buy an expensive set of tools to even be able to flash your drive. This isn't an easy/cheap task. It's probably better to send your Xbox to people who do this for you than to try it yourself.
- Drive Emulators: These are fairly new, and because of this, none knows how "safe" they are. They emulate the dvd-drive and load the games from an external USB-HD. This method is way easier, you don't need a specific burner, specific DVDs and no need to reburn/repatch, since updates for the emulator take care of this. Drop the ISO on the HD, done. Again, they aren't that easy to install and are also expensive. Though, they promise that with an upcoming update, you can extract the key of the drive, making the whole process doable for everyone.
You see, this isn't as easy and safe as on the Wii. It will take up a lot of time, so better think twice before making a decision. And again, none of them is safe. Both could be gone within a month.
Personally, I'm waiting. I'm waiting for the new dash and if it disables the CFW or the emulators already. I'm waiting for any bans. And I'm waiting that the drive emus can extract the key. Once I have these results, I'll see if I install an emulator, update my CFW, or go back to stock. Recently, I bought all my games, so maybe it's best to finaly quit pirating on the Xbox 360.
