Chipped XBOX 360

Chipped XBOX is nothing but a modified XBOX 360. This is a kind of Hardware Tweak. Microsoft doesn't allow you to do lot of cool features that you can actually do with your console. You need to know some electronics and how to play around hardware to get this done. You have to get a mod chip from a nearest electronics shop which supplies this. You may not find this in the stores easily as this violates the Microsoft warranty.

So you got to take that risk to enjoy some really cool stuff in your XBOX. You will not be able to enjoy the following warranty that Microsoft offers once you chip your XBOX.

Xbox 360 console: One year
Original Xbox 360 console with three flashing red lights or error E74: Three years from the console purchase date.
For Accessories you will get a 90 days warranty period.

Its advisable to do this kind of hardware tweaks after the warranty period is over.

Refer the link below to get a step by step process of chipping a XBOX.
http://www.ehow.com/how_6399978_chip-xbox-360_.html