Are console mod chips illegal?
Last month, Microsoft, Nintendo, and Sony went after Lik Sang, an online distributor of console mod chips. After several weeks of downtime, Lik Sang is back, but mod chips are curiously missing from its product pages. It appears the establishment has won this round.
The Lik Sang case brings up some interesting questions about the legality of mod chips, especially under the DMCA, and The Register has a good article outlining some of the finer points.
Under the DMCA, if Sony or Microsoft uses a "technological measure" to protect a copyrighted work, it is illegal to attempt to circumvent the measure -- even if the purpose of the circumvention is not to infringe the copyright.
So much for using the "But I just wanted to fiddle with the Xbox Linux Project" defense.
I don't doubt that, if a console manufacturer were to embrace or even allow mod chips to exist, they'd see a spike in console sales. However, since console profitability depends so much on game sales to subsidize the console hardware, which is sold at a loss, mod chips will likely remain console enemy #1, at least as far as manufacturers are concerned.