Two weeks ago Microsoft started mass bans on modified XBox 360 consoles to prevent them from using XBox Live. To unban your console, follow these instructions:
Unplug the Ethernet Cable
Power on your XBOX 360
Go to the Start Menu
Press Up, Up, Down, Down, Left, Right, Left, Right, B, A, then Start (Konami Code Solves ALL)
This is meant as a joke, for anybody who really got banned and is frustrated - check out #360banned and #fw on EFNet. There is not a current way to unban your console (only an old way), and there may never be. As far as restoring previous functionality - that is unknown as well. If you have not ran updates from Microsoft, then check out http://www.xbox-scene.com/xbox1data/sep/EkVlFFEZVpYbfgbAIm.php as well as the information below.
Here is some information about the old way of unbanning:
With up to 1 million accounts disabled, hackers including C4Eva have been working on new firmware such as iXtreme LT.
Until iXtreme Lite Touch is available, k0mpresd has shared a guide for unbanning your 8955 XBox 360 console from XBox Live, as follows:
What you need:
• Your 8955 live console + cpu key
• A 2nd unbanned console
• Nandpro b + flash cable
• Xell loader
• 1888 fs
• Robinsod's flashtool
• Use nandpro and dump nand from unbanned console.
• Flash xell and use jtag hack to obtain cpu key.
• Use flashtool to extract file system.
• Dump nand from 8955 console.
• Use flashtool to patch nand dump with kv.bin from unbanned console.
• Save patched file (patched_kv.bin).
• Open degraded + 1888 fs.
• Create 1888 downgrader image (downgrader.bin) from your patched_kv.bin file.
• Flash downgrader.bin to 8955 console.
• Attach hdd + ethernet cable and boot console.
• Connect to live and update to 8955 dashboard.
• Console is now fully working and unbanned!
Apparently this method has been known for a long time (since the King Kong Exploit days) and does indeed 'work'.
Basically you swap the Keyvault (or 'KV' in short, it stores stuff like console certificates, per-box private keys, DVD key, etc) inside the NAND with the KV from an unbanned console.
While technically very different you could somewhat compare it to swapping eeprom data during the Xbox1 days.
However there's a (really) big 'IF' (besides the required tech knowledge)... you need the (unique) CPU key of your banned console - without it you can't correctly write (or encrypt if you want) the new KV data in the NAND bin of your banned console.
Now you wonder how to get the CPU-key ... well by running XeLL of course!
To run XeLL u need to perform the JTAG hack (or the King Kong exploit, but that's even more outdated) ... and if you got banned the last few weeks it means you updated to the latest dashboard/kernel (else you can't get on LIVE).
And that's the problem... Microsoft patched the JTAG hack since kernel 849x (July 2009)... so no way to boot up XeLL (= no realistic way for you to get the CPU-key atm) and thus no way to swap the KV data in your NAND image.
And then there's also added KV protection (hashing) on newer motherboards (Falcon+ ? and kernel 1888 won't boot on those), but if you can't even get your CPU-key it doesn't matter much to do deeper into this problem.
The only way it would work is if you retrieved the CPU-key of your old banned 360 before you updated to anything over 849x. If you did that you probably know about all of this and I'm not telling you anything new
Downgrading kernel is not an option either, older kernels won't boot as both kernel and CB fuses were burned during the various updates MS performed, and you can't bypass that without... your CPU-key.
Hope that explains the situation a bit (tried to make it not 'too' technical)
On a side-note, it would probably be pretty easy for MS to detect KV-swaps (like HW-mismatches etc).
Side-note 2: in case it wasn't obvious yet those "unban isos" are fake and iXtreme LT won't unban you (it will instead try to avoid new bans).