Sorry, this is overhyped crap..
a.) Mod chips have been around for a long time. They've been solderless for a long time.
b.) We've been able to run Linux on our xboxes for a long, long time.
c.) The "Onboard OS" is an *application* stored on the chip's flash, which allows users to flash different bios images. It is an OS in that is does not require the stock xbox kernel. No more.
This is absolutely nothing new. Recent Xecuter bios images have supported packing .xbe files into the bios (simple ftpd was a good example).
Looks like your admins have been duped by an "anonymous" poster from the company who make this.
As for those of you who talk about wanting to use the MS media center thing and stream from Linux - check out XBMC (sourceforge) - it is one of the best pieces of "homebrew" software ever created.