If i want to back up my games on my 360 hard drive, where do I begin?
you CAN copy the 'game data' to the XBox360's hard drive using the XBox360's dashboard itself. BUT... you will still need the game disc (be it original or backup copy) in the XBox360's DVD-ROM drive while playing.
but this is still nice because of all the wear and tear it will save you since it wont wear out the drive laser since the game data will be read from the XBox360's hard drive.
Will i be able to play live using the back up?
yes. but there is ALWAYS a chance you can get banned from XBox Live.
so basically... if you cannot afford to lose xbox live then do not mod the console.