momo has one and it is great. He make backups of games by downloading them to the hard drive so he can play them whenever. You can also hook it up with your home network and stream video/audio whatever to your tv.
He also has a bunch of emulators installed so you can play n64, snes, genesis, and nes games on the xbox.
If you are getting a chip you should have the guy put in a larger hard drive too. I think momo went with a 300gig. Xbox games can take up to 9g each, but most are probably about 2.5g - 4.5g. You also might want the extra room to store downloaded videos and mp3s.
You can pretty much use the xbox just like a home theatre pc.
I don't think he ever uses xbox live, but I'm pretty sure with most modchips you can toggle them on and off. If you want to play on xbox live then you have to turn the chip off, pay for the xbox live service, and own the game.
'01 Bullitt #0054