literally none of this is relevant with an emulator that reads standard Xbox and Xbox 360 DVDs and runs the games straight off of them.
no publisher has any right to stop this. there's a reason Sony was able to do this on PS3 with PS1 games, and partially with PS2 games on first gen PAL PS3s.
noone is distributing anything, it's no different from releasing an FPGA console like the Analogue 3D, SuperStation One, or Analogue Pocket. as they do the same thing. they provide an emulator that runs authentic retail games from uninvolved publishers and on fact platforms the creators don't own... still fully legal.
yes they do. every Xbox 360 game is recompiled as an x86 app. the GPU is emulated, the CPU is not.
they also run it in an emulated Xbox 360 dashboard as to not break games expecting certain OS features like the keyboard or save select.
have you ever played an og Xbox game on a 360?
"mostly playable" was once MORE than good enough for Microsoft. getting Xbox games running on 360 was honestly impressive, but they almost all ran with issues, some games with absolutely glaring issues... yet, it was an officially distributed emulator by Microsoft that read original discs.
they could easily get away with it by just whitelisting games, and flashing a warning on non-whitelisted games that it might not work properly.
then improve it over time, adding more and more tested titles to the whitelist.
You're actually making a much stronger argument once you narrow it specifically to a disc based emulator instead of digital redistribution.
If Microsoft shipped a pure "insert your original disc and emulate it" solution, then a lot of the licensing arguments become way weaker. They would not be reselling the game, republishing assets, or redistributing downloads through the store. It becomes much closer to what Sony did with PS1 on PS3 or what FPGA consoles already do.
And honestly, people forget Microsoft already accepted rough compatibility standards before. OG Xbox BC on Xbox 360 was absolutely full of:
visual bugs
audio issues
missing effects
performance problems
and game specific glitches
Yet they still shipped it because back then "mostly playable" was considered acceptable.
The modern BC program is far more curated and certification driven.
At this point I do not think hardware is the real barrier anymore. Series X is clearly powerful enough to brute force a much broader OG Xbox and 360 emulator. Xenia already running on Series X kind of proves that.
The real difference now is platform expectations and corporate philosophy.
Back in the 360 era:
boots and mostly works = acceptable
Now Microsoft wants:
Quick Resume
stable achievements
cloud saves
capture support
HDR compatibility
suspend/resume stability
consistent online behavior
and support level reliability
Your whitelist idea honestly makes the most sense:
official emulator
unsupported mode for untested games
warning prompt for compatibility issues
community testing over time
gradually expanding whitelist
That would probably satisfy preservation people while still letting Microsoft officially certify games they fully validate.
That said, it also kind of defeats the business purpose for Microsoft if they cannot really monetize it. The current curated BC model still lets them resell digital copies, drive Game Pass value, negotiate rereleases with publishers, and maintain a controlled ecosystem. A universal disc based emulator mostly benefits existing collectors and preservation enthusiasts, which is great for consumers, but probably a lot less attractive from a corporate revenue standpoint.