A group of Xbox 360 devotees have put together a firmware hack that modifies the console to run backed-up, and by extension pirated, versions of original Xbox and Xbox 360 games.
Bad news for Microsoft then, but it's nowhere near as bad as the old Xbox mods were. Those allowed people to run all sorts of homebrew code, including modified media-player front-ends, and often came with a switch allowing people to maintain a "clean" Xbox on the side that the Live service would be unable to detect.
The 360 hack doesn't go anywhere near that far yet - it simply runs back-ups, which have to be burned to dual-layer recordable DVDs. What's more, due to the nature of the DVD drive hack, it only works on Xbox 360s that have Toshiba-Samsung DVD drives in them; a significant proportion use Hitachi-LG drives instead.
The authors of the hack claim it works, but add that the process is relatively complex involving firmware flashes and the like, and point out that Microsoft will probably discover a way to detect the hack and ban it using Xbox Live anyway. With Live a much bigger deal on Xbox 360 than it ever was on Xbox 1, and Xbox a good bit more expensive, that's likely to put a lot of people off.
For all the confusing details, refer to bits of the Internet our SCREAMING PSYCHO LAWYERS insist we don't link to, but don't blame us if it explodes in your face. Or if your face explodes generally. Frankly we want nothing to do with your face.