Man, it's always hard to tell where to put these Bridge CE threads.

Ok, so here's the legal crap MS has finally clarified:
http://www.xbox.com/en-US/community/developer/rules.htm
I appreciate that it is worded well and is polite and concise, but it still means a headache for me any way you look at it.

Three rules about the usage are what's getting me:
You can’t reverse engineer our games to access the assets or otherwise do things that the games don’t normally permit in order to create your Items.
Because I intend to use an "unlocked" version of the H2EK, as well as various tools used for extracting the aforementioned assets.
You can’t use the soundtracks or audio effects from the original game. We often license those from third parties and don’t have the rights to pass them on to you.
Not quite so bad because there is other music out there, and I do know a very talented band that's perfectly willing to let me use their music, but I had hoped to toss in some singing monks somewhere.

And here's my biggest problem with the rules:
You can’t add to the game universe or expand on the story told in the game with “lost chapters” or back story or anything like that.
First off, that makes most if not all of the fan fiction on HBO an infringement since short stories fall under the ever so broad category of "Items". So what am I to do with Scythopolis? Minor storyline spoiler to explain where I'm coming from:
Scythopolis is the capitol of the Decapolis, a collection of ten ancient cities, of which one of them is Damascus. If you'll remember the Damascus facility in the Halo novels... all I'll give you is that it has to do with early contact with the Covenant and the origins of Mjolnir.
Clearly that falls into their broad category of "expand the story told in the game."

So what am I to do? Well, I'll discuss it with you guys a bit first, but I think I'm going to try to get in contact with somebody in Bungie (I know, it's a bold statement) because I'd much rather talk to someone who actually has something to do with the epic win that I love rather than some M$ legal representative.