[kosmiq]

There is some way to upgrade to a bigger HDD with softmod but I think it does involves a chipped xbox and so on.

A softmod DOES NOT modify the original built-in xbox bios as that is not possible. To even be able to modify the built-in bios a few points on the m/b must be soldered and then a chip should be used to flash it. It can be flashed from a softmod though.

Softmod simply works like this,
by using an exploit in certain games savegames an installer can be executed and install a few files.
It installs a dashboard, a BIOS-loader, a BIOS-rom and a few edited xbox-dash files.

Dashboard - mostly EvoX or something similar

Bios-loader - will load a modified bios upon boot

Bios-rom - the bios loaded by the loader

Edited xbox-dash files - here is where the entire deal is after the installation. And also the reason why it is sensitive to dashupdates.
There are files in the dashboard that will be triggered directly upon press of the button (by the bios) and thus start immediately. So what about these? Somebody found a way to modify them so that they can start something else to upon boot. So by editing them to start a bios-loader upon boot it will load a modified bios that will play backups. The bios will also launch another dashboard like EvoX or whatever the modified bios is set to.

Now that sounds great doesn't it? Well there is more to it also! You can also get the xbox to boot the original unmodified dashboard to play on live. How is that possible? For example Krayzies softmod Installer will set up the installation like this:
If Power Button is pressed the modified dashboard will load and start the bios-loader.
If Eject Button is pressed it will load a virtual xbox-dash partition on E: drive containing the original dashboard that can be used for live. The best thing with this is that the modified xbox-dash will be untouched and can still load the bios-loader even if Live is pressed (because live updates certain xbox-dash files).