According to Microsoft, it is a common misconception that the Xbox uses a modified Windows 2000 kernel, instead they claim that the Xbox operating system was built from scratch but implements a subset of Windows APIs. The idea that it does, indeed, run a modified copy of the Windows kernel still persists in the community, however what is known for sure is that the Xbox's kernel works like a BIOS and is Win32 based, but does not have all of the resources or capabilities of a full Windows NT based operating system, (for example: neither DirectShow, registry, nor DLL are natively supported on the Xbox), and because of the constraints on the hardware and environment of the Xbox, all software development of XBMC4Xbox for the Xbox is focused on reserving the limited resources that exist, the main hindrance of which is the amount of available RAM at any one time.
