Everyone who is hyped up over this, sit down and take a pill!
C/Net was late catching the "mod" clause in their Live contract, so they are merely speculating.
MS had planned on putting this in all along. In spite of the legalese they PUBLICALLY announced that they would NOT target mod chips.
Rather they would be looking for original games in the DVD.
Their announcement carries more weight than anything else. Reversing course now would put them in hot water in many ways.
MS also has been rather freaked out over the shear number of mod chips that are out there (and yes they are reacting to the "unusual WalMart returns" too). This is why they are looking into the Mod chip tech w/potential ways to defeat it.