it does not violate the xbox live terms and conditions. There's even ms licensed controllers for sale at wal-mart:

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so with that said, i mod controllers. I've only been selling them locally but somehow people keep trying to order them from out of state. I'm going to put them up on a website soon. I sell them cheaper than you'll find on ebay or anywhere else. The reason i've been selling them locally is cause most people just bring me their controller and $50 and i hand them a brand new controller that's already been modded. We usually sit down and have a few beers while i let them try the thing out before actually making the transaction. I've got to be honest though, you don't really have any sort of advantage. It's just a blast to use. It's like having one of those racing wheels. A racing wheel makes you play a lot worse but it's a lot more fun. Remember taking a clothes pin and using it to hold a baseball card in the spokes of your bicycle? Did you ride like a pro bmx guy? Hell no. It was just fun. Trying to rapid fire a .50 sniper rifle and hit anything is is the same way. It's a whole hell of a lot of fun.