Its a possibility, yet very unlikely due to the complexity. It would require modification to allow unencrypted packets so it would be JTAG only. You can grab the packets you receive and decrypt them with the public key. Research them then create a server that sends and receives packets the same way, just all unencrypted.
Or replace the public key with your own key?
Also, we know (or can find) the public key, right? Can't we just use something like wireshark to capture the traffic to the 360. Use the public key on the computer to decrypt it. Create a simple server to replay the packets encrypted with your own key. (Hard one) Change 360's kernel to use your key.
I guess it would be hard to emulate multiplayer for games, but it shouldn't be that hard to emulate the marketplace? The only thing I miss from my JTAG is downloading demos and content from the live marketplace. If there can be a proxy-like live server that takes Live data decrypt it (maybe then reencrypt it with your key), and send it to the 360, we can have stuff like rock band song packs. Just a thought.