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Originally Posted by bcrabl
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Either the XBox or the XBox drive would have to have device keys to perform decryption. It seems likely that they are in the drive, but it's not publicly known for sure. It's reasonable to believe that Microsoft set it up this way so they don't have to pay AACS fees, they don't have to update keys and they can point the finger at the drive mnfr if it gets cracked.
Since the drive has a built in player and is treated as a standalone, its device keys don't directly lead to the normal processing and media keys that people are familiar with here.
The results of its device keys (like other standalones) have to be decrypted using the KCD (which can't be read when the drive is in an AACS authenticated session with host software on a PC. This wrinkle is intended to prevent device keys found in standalones from being used with software players.