Adding third-party hardware and software to current-generation Xboxes is a rewarding hobby for some gamers. Mod chips frequently extend the feature set of the original machine in a way that Microsoft and its developers never intended. Some mods are relatively harmless, such as running import DVDs on your Xbox. Some mods facilitate piracy of games.
It's this latter use of mod chips that game developers and hardware manufacturers would like to stop. Though they're not claiming to have built the Xbox 360 to be invincible to modification, Microsoft claims it will certainly take longer.
In his comprehensive feature on Microsoft's Xbox 360 presentation at GDC Europe 2005, Gamasutra's Simon Carless paraphrases Andre Vrignaud on mod chips for the Xbox 360: "Microsoft took 2 and a half years on security this time round, whereas the Xbox only had around a year…. It's going to be a long time before the Xbox 360 gets modded."
Well, it worked for Windows, right? First released 20 years ago, Windows is certainly an impenetrable fortress of unmoddable stability. Cheap shot. We know.