Well to answer your first question, the chances of getting banned are always there, but if you stealth patch your games the chances are much less. However, I wouldn't recommend playing with any burnt games or the xK3y on xbox live.

And no you do not need to flash your drive. But you will need to extract the drive key from it. For that I would recommend the x360usb pro v2.

In all, I would recommend just flashing your drive with instead of getting the xK3y. But its up to you!

I have a xk3y and love it, you don't need to flash your Xbox, but you do need the drive key. I have been playing online with it for about a year and haven't gotten banned yet (knock on wood). The only thing that is bad about it is the cost of it and that you have to buy an extra hard drive. You also don't have to worry about messing up disks. Another cool thing is that you can get their WiFi adapter and chose what game you want to play from your computer, android phone or iPhone. If you do get it make sure that you only select your games from the remote or using the WiFi adapter.

Its fun and easy to install,no need to burn games as they are played from a usb hard drive.
You can Iso mod very fast.
Downs cost
Buggy menu
You must have your dvd key.
easy to install but can be a bit fiddly.

I recently invested in an xk3y and I love it. Definitely worth the price and I much prefer this over a flashed drive.

I would recommend just flashing your drive to be honest.