The XBOX Mod chips are not illegal if they ship with legal Linux distributions. They're simply a flash chip with Linux stored on it.
The illegal part is installing a bios like Xectuer bios that uses parts of the MS bios and selling the chip with the hacked HYBRID homebrew/MS bios installed.
It's really bad if you sell super xboxen with 100 xbox games, emulators, roms etc. In that case you're asking for trouble and it's just bad news, there was a big raid this spring/summer in the east coast where many criminals were rounded up.
With all this legal trouble Team Exectuer, a leading mod chip maker is backing away from MOD chips and concentrating on accessories.
Running XBOX media Center and Amiga emualtors with adf's and roms you bought is once thing...
Copying 100's of commercial games and re-selling them is piggish.