What i wonder, correct me if i am wrong here, is if they might be recompiling the games from the source from x86 to PowerPC. This is might be wrong, but since Halo 2 is getting a big HD boost i don't see how you can suddenly emulate that.
I think they might take the approach like so:
Xbox HD Stores loads of just XBE (or what have you executables), when you insert an xbox 1 game it loads the x86 XBE into memory, it reads the XBE header to identify it, from there it tries to match it to an equivalent PPC XBE, then launching that PPC XBE. The PPC XBE then loads all of the game information off the disc. Since the game data (images, music, and such) are not compiled to x86 or anything this could work. This is much like moving Windows Games to Linux, only the exec changes.
I think it's more logical to recompile, have the app run natively, and just load the data from the disc. This could also explain why most games don't run yet. They simply haven't tweaked the source to compile on Xbox 360's arch. yet. Also, if this were true they could patch 007:AUF and other games with holes to no longer be vulnerable. Emulation would just be too slow for even 3 3.2ghz G5-Equals to handle, think Halo 2, and think about it, how can you emulate an HD performance boost?
Like i said correct me if i am wrong somewhere. But it just seems like recompiling to PPC is a better choice.
My 2 cents.