Zen Like Calm wrote:
13. SERVICE OPERATION AND EQUIPMENT The Service may only be
accessed with an original Xbox, an Xbox 360 console, a personal
computer, or by logging into your account via Xbox.com. You agree that
you are using authorized software and hardware to access the Service,
and that your software and hardware have not been modified in any
unauthorized way (e.g., authorized repairs, upgrades and downloads).
Any attempt to disassemble, decompile, create derivative works of,
reverse engineer, modify, further sublicense, distribute or use for
other purposes either the hardware or software associated with an
original Xbox or Xbox 360 console or the Service, is strictly
prohibited and may result in cancellation of your account and/or your
ability to access the Service, and the pursuit of other legal remedies
by Microsoft. Microsoft may take any legal action it deems appropriate
against users who violate Microsoft's systems or network security or
this contract or any additional terms as described in Section 2 above,
and such users may also incur criminal and/or civil liability.
Did you noticed, that this statement is about Service usage.
They means Xbox Live.
And as hardware they mainly means console (or maybe I understood them wrong because I'm not native english speaker).
If you modify console then definitely you worth a ban.
But it is difficult for users to control fakes usage.
Or did you really want to receive ban or any other punishment when, for example, your friend connect his unauthorised memory unit to your Xbox?
This even can become sort of revenge - to going with a fakes and inserting them into consoles to ban them and their users. :)
They will not stop hackers by blocking unauthorised memory storages, because hackers and unfair players using other tools for their deeds (for example, you can even use official MS transfer cable to connect HDD to PC and gain full access with specific software).