the legalities vary from country to country.
In Sweden, where I live, you can go to a store and have a mod chip fitted to allow you to play backup games and install a new hard disc if you wish. It also plays back nearly all movie and music file formats too.
I know in some places, I think the UK is one, it's not even legal to sell mod chips commercially, so you need to buy them abroad and fit them yourself.
It's not illegal to use them but selling them is a different matter. in the USA they hate anything to do allieviating protection or stuff they can't control so it's probably all banned.
The xbox is pretty much a PC in a case. You can install Linux too and buy other accessories, like a keyboard for it.
www.xbox-scene.org
has all the things you need to know to get this working.
The xbox is the most powerful multimedia entertainment machine around once you get rid of some of the obnoxious locks microsoft put on it
I've got some teething problems with IEXBOX just now. 2 out of 4 of the new comps i've put in crash the game when you exit a match or finish a match. I need to suss out why as they don't cause the PC version to do that same.