The Xbox 360 has incredibly strong software security, making attempts to hack the console via the operating system largely unsuccessful. Two hackers, GliGli and Tyros, believe they have found a way to get unsigned code onto the console by circumventing the software security altogether.
The hack is being called the Reset Glitch Hack. Instead of attempting to exploit game bugs or target drives, this hack goes after the CPU of the console directly. First, the hackers slow the CPU during boot. On the older model 360s, a pin is accessible, allowing this to be done directly. On the slim model 360s an external HANA chip bus was used to rewrite the registers in the clock generator. With the clock speed slowed, a pulse is sent to the reset circuit, which does not cause the system to reboot. The CPU speed is then restored to normal. If this works, the 360 will fail to check the bootloader signature and your own custom bootloader can be used.
The hack essentially works by fooling the 360 into thinking the loaded code is signed, thus making it fine to run. The hack apparently works about 25% of the time, which isn't terrible in terms of odds. The hackers who figured all of this out claim that Microsoft won't be able to block it with a software update, which could prove to be problematic for the console manufacturer.
GliGli and Tyros uploaded a demonstration video which shows a Xbox 360 launching a Linux loader as well as an N64 emulator. The pair claim this exploit will only be used to run homebrew code, not to pirate software. The description of the YouTube video explicitly states "NOT FOR PIRACY, NO LIVE, NO MOD, ONLY FOR HOMEBREW AND LEGAL APPS."
This isn't a super easy hack to pull off, so it's likely that the only folks willing to go through the trouble would be those interested in homebrew, but what actually happens remains to be seen.
