In an interview with Robbie Bach from the Xbox division of Microsoft, a question was brought up about modding the Xbox 360, and what they were doing about it.

IDGNS: You’ve been very tough in prosecuting modders. Aren’t you falling into the same trap as the music industry has found itself in and not responding to expressions of consumer demand? Bach: The tricky question is why people are modding. There are people who don’t want to pay for games so that’s not good for our business model. There’s a form of modding by people who want to hijack our hardware to do other things. Given that we lose money on the hardware that’s not a customer we’re excited about. There are some people who have done modding because they want to do some related things like play music. We have an Xbox 360 built with a lot of that functionality. Those type of customers will be excited about today’s product.

Well, that's not hard to answer. People are modding because they want capabilities that Microsoft doesn't have in the Xbox and, in some cases, will never have. From what I can tell, Microsoft seems to have curbed a lot of reasons why people will mod, but there's still the one big reason that people will mod, that Microsoft will never, ever do.

Games on a hard drive.

It'd be suicide for their game income. Personally, I'm on a quest to rip games to my PS2's hard drive simply because I'm too lazy to change discs. I still buy games, and will continue to buy games. However, the majority of people either rent from Blockbuster, borrow from friends, download off the Internets, or some other way of getting it which doesn't include royalty income going to Microsoft, which is where they make their money. So, that won't happen. But, people will still try and do it.