Geeklawyer writes "An Italian court has declared modchips legal in Italy. The ruling related to PS2's but the same logic applies to XBox. The justification was that chipping was necessary to counter a monopoly. They also said that running ones own software on it was a justification, so I'd guess Linux on PS2 was offered as an argument. This also reflects an obiter comment in a recent UK case that said Sony had an indefensible position as a monopoly.
The court said:
"It's a little like Fiat marketing its cars while banning them from being driven by non-European citizens or outside towns," and "the product's owner can use it as they see fit"."