Microsoft got an earful from renowned hackers on a variety of security issues at its Blue Hat Security Briefings in Redmond last week -- as well as a first-hand look at how a German hacker was able to take over its hot-selling Xbox 360.

Felix Domke, who first discovered the Xbox bug in November, says he met face-to-face with Xbox 360 developers as well as other Microsofties at the briefings. He told them how he was able to use a vulnerability in the Xbox 360's hypervisor to perform a so-called "privilege escalation" and run arbitrary code -- including an operating system other than that of the Xbox.

"The vulnerability is a tiny code bug which allows, when exploited, to do whatever you want on the Xbox 360, running [your] own code without being in any sandbox," Domke said in interview via email.

Domke says he used a feature in the Xbox 360 against itself, writing directly to its memory without attaching any hardware. He found the wily bug by reverse-engineering Microsoft's hypervisor code and performing a code audit.

"It's significant for the Xbox 360, because it gives them the keys to the kingdom," says Andrew "bunnie" Huang, hardware lead at Chumby Industries, another of the Blue Hat speakers. Huang introduced Microsoft to Domke and helped determine whether Microsoft had any legal concerns about the hack (it did not). Microsoft later patched the bug, and Domke went public with the bug and an exploit afterward.

"Copyright laws like DMCA and their European counterparts aren't easy to understand in all [their] implications, and while we try our best to not do any work which is forbidden by these laws, there are often no definite decisions on what's OK and what's not OK," Domke says. "And we definitely didn't want to risk a lawsuit."

Domke says, if exploited, the bug let you run your own programs -- including Linux -- on the 360, without having to be a licensed developer. "It also allows you to mess around with the original kernel, possibly enabling a way to boot games from HDD, extract secret keys out of the box, etc.," he says. "Fortunately, there hasn't been much work done on these parts yet by the hacker community, mostly because piracy was possible before, with a much easier way."

Huang, who demonstrated hardware hacking at Blue Hat, and who also had previously performed another Xbox hack, says Microsoft's efforts to "lock down" a hardware platform like Xbox 360 to prevent piracy carry some risks. "People eventually hack through it."

— Kelly Jackson Higgins, Senior Editor, Dark Reading