Well we got a bit more details, courtesy Commodore4eva, about the Error 66 some users with modified DVD firmwares got after the Fall 2006 Xbox360 Update.

It looks like Microsoft has implemented 'DVD DEVICE' and 'DVD VERSION' control in the new kernel, a bit similar to the Windows XP/VISTA device upgrade check!
Apparently Microsoft stores the original stock factory drive/version somewhere on the 360, and with the new Fall06 kernel it will give the user an E66 if it detects a drive model change or lower firmware version than the stock factory version (Update: it's possible that the hardware info has been stored on the 360 at a later time, like during a previous update, rather than stored from the beginning/factory).

What this means for Toshiba-Samsung TS-H943 drives is that if the drive was originally loaded with the MS25 firmware (often referred to as an 'MS25 drive') it should work fine with C4E Xtreme v3.3 (based on MS25), but also with C4E Xtreme v4.2 (based on MS28) as MS seems to allow a version upgrade (probably so they can upgrade for repair etc). However on a drive originally loaded with the MS28 firmware (often referred to as an 'MS28 drive') anything below C4E Xtreme v4.0 will not work as v3.3 and below are based on MS25 ... which means a version downgrade for your drive.
There are a few users out there that reported E66 problems with an MS25 drive (which should normally work with all Xtreme releases), that could be because they swapped drive or maybe some bug/unknown device situation. Our E66 database suggests there is a certain (but not 100%) failrate with MS25 drives and Xtreme 4.0+ firmwares, while v3.3 and lower seems to work perfectly on MS25 drives.

It's unclear what Microsoft really tried to achieve here. Maybe they tried to lock out users with modified Toshiba-Samsung TS-H943 MS28 drives. When MS wrote the fall update, C4E Xtreme v4.0+ (which is based on firmware MS28) was probably not released yet and C4E Xtreme v3.3 and lower would be no option for these users as those are based on MS25 ... which is a version downgrade and would thus result in E66.

Hitachi-LG GDR-3120L drives not affected? Well, modified firmwares for the Hitachi-LG don't reflash the whole firmware. Instead they patch small parts of your onboard DVD firmware which will obviously not change the version. Model and version don't changed, so you get no E66.
Exception here could probably be if you use a full flash replacement firmware modchip or if you manually removed the flashchip and flashed it with a firmware version below the version# stored in the console. I have no real data on this (few people do that), let us know if you fall into this category.

Replacement drives? That's something else we should talk about as it's now probably no longer possible to swap from a Hitachi-LG GDR-3120L to Toshiba-Samsung TS-H943 (or the other way around) as the model of your drive would no longer match the model stored on your 360.
Also, the FW version on your replacement drive should not be lower than your stock/factory drive. Actually to play safe (certainly for a Hitachi-LG as this drive does not allow to easily flash/upgrade the whole firmware like the Toshiba-Samsung does) I suggest you get a drive with the same version as your stock/factory drive if you ever need a replacement drive. Quick note for the new people here: if you ever plan to replace your drive yourself, keep in mind you also have to patch/flash it with your unique DVD drive key - the key-check is of course still there ;)
I wonder if Microsoft did change the DVD model/version info stored on all repaired/refurbished Xbox360s when they swapped a DVD-drive or motherboard ... Let us know if this happened to you ;)

I also have an update about the 'new/refurbished/replaced Xbox360 Error 71 issue' I talked about earlier today (which is totally unrelated to E66 or DVD firmware issues). According to Major Nelson Microsoft released the 'fix' to the Fall 2006 update:

"An updated version of the Fall Update is now available on Xbox Live which has eliminated issues relating to new or refurbished consoles failing after applying the Fall Update. Users who have already applied the Fall Update and are seeing an error message should call their local Xbox Support telephone number. If you already have the update, you will not be prompted for another update."

Now ... Microsoft does not want to tell what they fixed exactly. But as E66 is probably on purpose and not a 'problem' for MS, and Major Nelson mentions new/refurbished consoles I'm gonna assume they fixed the E71 issue. Sadly if you already tried to update your brand new system before and got an E71, it looks like you're up for a(nother) swap/repair even before you could play your console for a second. heh.
Anyone out there with a brand new Xbox360 wanna test if it's really fixed? ;)