Some quick background.
Microsoft has a death-grip on the XBOX online market. The lobbies where folks meet up and chit-chat (like channels in irc) are all managed by Microsoft and access frequently costs money.
Some enterprising people figured out how to modify (mod) their XBOXs to allow different firmware to be loaded up. One of these firmware and software packages allows one to run their lobby software of choice. 10th Prestige seems to be the most popular at the moment. Once up and running, the address is provided to friend who then sign in and invite others. Sometimes small amounts of money are charged.
What does this do to your internal network? Nothing good I imagine. External ports will need to be opened in order for this to work correctly unless the XBOX is setup in a DMZ. Most kids, in their desire to get things up and running, will turn the firewall off entirely, leaving the entire network exposed, even if NAT is in use. It may be better to setup a router to partition the XBOX off from the rest of the network. Best bet, go with placing the XBOX in the DMZ. That way it'll be the only device at risk.
A few other issues. 1) Don't forget to review the TOS for the service provider. They may not permit such activities. 2) Your bandwidth usage is going to increase. Check to see if you have a monthly cap. 3) Your available bandwidth is going to decrease if enough people are logging into the XBOX lobbies. Make sure you're prepared to have slower downloads/surfing speeds if you already have a slow line. 4) Kids are noisy. Buy ear plugs.