Modifying an Xbox 360 in any way, including through software uploaded through a USB drive or hardware replacement, can cause several different types of dangerous issues, such as voiding the warranty, destroying the unit or even preventing online play. The severity the damage incurred by the system varies on how the user modifies the Xbox 360 or if they are caught.
Although modifying a Xbox 360 allows for further customization of its appearance there several consequences put it place to prevent doing so. The most common result is a voided warranty. This means if any problems occur with the Xbox, including hardware related damage they could be completed irrelevant to the modification process, will not be covered or repaired by the Microsoft company.
The Xbox can also become damaged in the modification process. USB modifications are used for in-game cheats and hack processes. Some allow a way to modify the look of a game or may even go as far as to install additional features into the console. Since these modifications deal with changing aspects inside the console's software, the code has a chance of becoming corrupted. If it does become corrupted, the affected game will no longer be playable and in some cases, the console itself will cease to function.
If the modification process works flawlessly, there is still a chance for Microsoft to ban the modified console. Microsoft has a strict policy against cheaters who use Xbox live, and make it a point to ban those users who are caught using software modifications.