Interesting news coming from Joystiq today. It seems the demos of iPods working with the Xbox are only part of the story. Many people probably thought they had some deal with Apple that allowed them to play songs from the iTunes library… well they don’t. It seems the Xbox 360 will only support unprotected music from your iPod.
Support for unprotected music from your iPod in AAC format with free download (Silver or Gold Account) from Xbox Live Marketplace (requires an Xbox 360 Hard Drive or Memory Unit). Note: Does not support music that was downloaded from the iTunes music store because it is copy protected [And herein lies the catch: AAC files originating from the iTunes music store will not be supported]
For some, that is a shame, but for the people that modded their old Xbox, I doubt they’ll care.