He has updated. I'm not sure, but I thought if he really swapped the drives without the firmware that the drive wouldn't work at all. Am I wishfully thinking because it reads movies? Or would it only effect games? If it wouldn't work altogether then he might have been thinking of a differnt 360.
Swapping drives without fiddling with the firmware is the same as losing the key (except if you have the original drive you have a chance of getting it back). The drive will work for DVDs and you can use the downloadable 360 games but no chance of actual 360 games copied or otherwise.