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If your xbox is found modded on Live the account is disabled (no refund) and the serial number for the xbox (everyone is different) is banned as well, so you can't just go and buy Live again and get back on, you need a new xbox as well. That said there are ways around it.
I don't (haven't) used any methods to try and log in to Live with my modded xboxes because I enjoy Live too much, so that's why I also have an unmodded box. I do believe though that even with the methods involved to be able to log in to LIVE with a modded box, that all it does is allow your box to work like an unmodded box, so you would still have to use the original disk, not a disc copy or a hard drive copy. Again I haven't tried this don't quote me.
If you have anymore questions feel free to ask.
Cheers,
Zed
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