oh lord... *sigh* still not sure why there is a group of people who feel that softmodding is *BAD*. Look... if you can READ and follow directions, the chances of f'ing it up are NONE. I have softmodded six Xbox's now, for myself and friends, of different versions, with no problems. Even when I did the first one, I was being a bonehead, in a rush and made some mistakes, but nothing I couldn't recover from easily. If you follow the instructions carefully, you wont mess it up... and anyways it's not even that difficult to do or the instructions are not that hard to understand.
And yes, advances in softmodding have been made and there are ways to play on Xbox Live with a softmodded system. However, I will say that it is definately easier to have a chipped system if you do play on live and regularly. Also, one other thing if you do ever plan on upgrading to a larger hard drive, you would have an easier time of it if you have a chipped system as well. BUT, you can still do both with softmodded if you're willing to go to a little extra trouble.
For me, I dont really play on live and dont care much about very many Xbox games in general, that I would want a bigger hard drive to fill up with Xbox games... I use it for emulation MUCH more that for playing actual Xbox games, so Xbox Live isn't a big deal for me and having the stock hard drive works out perfectly as it fits all the games I want on there.
Bottom line: Softmodding is FREE, you don't have to open up your system to do it (and for those that say there are risks, it's not like there aren't risks involved in opening up your system to install a chip?!?!), it's easy, and can be very easily undone if you ever want to return your system back to stock.