It can, but AFAIK not with a physical mod chip.
You have to open up your 360 and use a sata cable or sumfin' and flash the DVD player the 360 has in it with one of the hacked firmwares.
Here's a link to how to do it, I don't know if it's still up-to-date, but have a look anyway to get an idea:
Xbox-Scene News: Xbox360 DVD Firmware Hacked - Video
Beware though, if you don't stay on your toes and have your firmware always up-to-date, there's a chance the Microsoft will ban your XBL account.
Also, if you don't want to keep opening your 360 up to flash your firmware drive, you can always buy this:
Blaster 360 Xbox 360 Blaster360
There's also many other add-ons besides the blaster 360:
xbox 360 mod chip xbox360 modchip modchips mod chips globe 360 nme-360 nme 360 blaster 360 xeno top gear x360 usb connectivity kit blaster360
Hope I was of some assistance.