The unnamed man had been adding larger hard drives to the consoles, and selling them via a website for £380 with 80 free games included.
The EU Copyright Directive makes it illegal to circumvent copy protection systems on hardware including games consoles. It is the first conviction since the Directive was enacted in October 2003 in the UK.
He was sentenced to 140 hours community service and ordered to pay £750 costs at a court in Caerphilly, Wales.
"This is essentially about software piracy, and I do not think this will be the last we see of such cases," said security consultant Robert Schifreen.
"A games console is not the hardwired device that we used to see it as, and people increasingly want to get inside and adapt them for their own purposes."
The conviction was for stealing games software and for what is known as mod chipping, the act of modifying a games console.
The man's arrest was the result of undercover work by the Entertainment and Leisure Software Publishers Association, which spotted the activity and informed Caerphilly Borough Council Trading Standards and Gwent Constabulary.
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