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If you check their website, Live support is a work in progress, meaning right now it is not safe for Xbox Live. So yes, if you use this now on a live system you will probably get flagged and banned. In my opinion I don't ever think it will really be safe for live. Even if they make it safe for live, all it takes is one update from MS and it might be detected.
i like the fact that now i can ditch the huge dvd drive, and put a bigger heatsink on the gpu.
You may or may not be able to remove the drive completely. The emulator hooks up between the drive and the motherboard. They have not specified if the drive can be removed once the emulator is hooked up. One complication I can see to that is if the drive communicates with the motherboard during start up, then the emulator takes over or something like that. It is very possibly the emulator relies on the drive being present for some reason. If this is something you want to do I would recommend emailing them and asking that question.