Alright, so I was just on with phone support and they directed me to post this question here. In the ToU it states that the device must be authorized and no modifications to the code can be done. Obviously.
When it starts hardware though it doesn't specify what it considers hardware. The phone rep says it goes one of two ways, either everything has to be Microsoft authorized from headsets and everything else, or just the Xbox 360 itself and the coding within it can't be tampered with.
If no modifications are being done to any of the proprietary hardware, is it still against Live ToU to use a standard SATA harddrive?