can u use xbox live with a modified xbox. if yes what are the consequences of being caught. i heard they can block ure port or sumthing like that. can the port be unblocked if it does get blocked!

You can go on Live so long as you have a switch to turn your modchip off.
If you go on Live with the chip on, you are instantly banned. The only way round this is to 'steal the identity' of another Xbox by copying it's EEPROM and setting it up on the banned box.

and a LOCKED HD dont forget..

when the xbox modchip is turned off does that mean that copied games cannot be played? how do you turn the chip off?

Obviously. And you add a switch to it.