No, Eric's correct.
People can pull the file from their HDD and use a hex editor to hack their MW2 profile. After all, it is a Windows-based file.
Said hacks can also be spread like a virus. How? They can add a viral hex code to their XBox that "infects" any user files in a private match. Sometimes, we'll be playing and get a message inviting all recent players to a hacked room for such perks as an instant 10th level Prestige, aimbots, and wall hacks. For a fee of 1600 MS points, of course.
It's not a secret and is pretty rampant.