There's been a softmod for 360 available for about two years now. Flashing the DVD-ROM drive with Xtreme or iXtreme firmware is considered a software mod, because no alteration is made to the 360 hardware. The modified Xtreme or iXtreme firmware is flashed to the firmware chip on the 360 enabling the user to boot backups.
The basic process involved in flashing the 360 involves dissembling the system, hooking the 360 DVD-ROM drive up to a compatible SATA chipset/PCI SATA card with a SATA cable, booting into dos and entering the correct read and flash commands to flash the drive. The process differs depending on what DVD-ROM drive you have. Read more here:
Xbox 360 Quick Links