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Yeah, by limiting you to the .NET runtime, they can strictly control what you have access to-- I'm pretty sure there's no inline ASM or anything, so it'll be quite hard to find holes in their security mechanism.
Of course, by blocking network access, it also makes it impossible to use it as a bootstrap for grabbing code off the network-- or rom images. Sure, you might be able to put an emulator core on there, but getting access to ROM images.. hell, I'm not sure you'll be able to read random files at all in general, for that matter.
I'm sure someone'll figure out how to crack it to allow access to non-XBL users, and THAT will open up emulation and the like, but then we'll be right back to the softmod headaches for XBL users.
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