Limited Backwards Compatibility means the Xbox games won't work with the Xbox 360, they need to recompile the Xbox games to be compatible with the 360, so you will either have to trade your games in for 360 compatible ones, or just buy new ones. Only the most popular games will be recompiled such as the Halo games, Jade Empire, the KOTORs etc.
EDIT: Ok now its just confusing. First they say the games need to be recompiled, now they say they'll work... WTF
http://www.gamesindustry.biz/content_page.php?aid=8996
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I'm thinking patches via the 'free' version of Xbox LIVE! It won't let you play online games, but it's supposed to have the marketplace and such on it. I imagine the chief purpose of it is for distributing game content and patches for Xbox games.
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It's a dumb idea, they should push the release date back and DO IT RIGHT with FULL reverse compatability.