MS can detect consoles which are incompatible with the new format and will automatically (if connected to LIVE) contact the user informing them that they can send in their old box for a newer one. And it's for the really, really old boxes. Like 2005 old.
It wouldn't really be "a lot" of modifying to the engine. It's just a pipeline issue, which is abstracted from the rest of the engine since it only sees game data as tags and tag resources (there's blob data, but that's for runtime systems). If you use a different engine, you have to then deal with that engine's shortcomings and also transfer ALL content AND data to its format then RETEST everything because it's an entirely different product. You won't see non-map DLC in Reach (unless they do something in a TU), but you'll probably see such with Bungie's next game.
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