There were multiple "jailbreaks" that were never publicized. Teams/Groups had their methods, maybe not full "jailbreaks" as the current implementation of it. Any good hacker worth his weight doesn't let his shit get very far, because they like to keep their hack alive and well and not have it patched. Also as far as him doing it through the music tab...I call bs, false lead if anything
Edit: Also, easiest way to have hacked any game? Developer model allows you to view the data on the HDD unencrypted, as the jailbreak allows you to. So this ability to have Challenge Lobbies has actually been around for a while, and possibly was exploited in this way first, but no where near the level and customization it has now.