Alright, when this first came out the entire machinima community was in an uproar, Microsoft didn't explain theses rules nearly well enough so conclusions were jumped and everything was taken in the worst way. Thanks to the amazing machinima god Hugh Hancock (one of the originals) we now about the rules and their impact on us. He sat down with the guys who wrote it and clarified a lot of the problems.
http://www.machinimafordummies.com/Go there for his rather lengthy explanation... but the short version? As long as you don't make a show SO horrible, SO obscene and SO vulgar that Microsoft feels that it's existent makes their entire company (and other parts of their company, I.E. that game itself) look bad You'll be alright with whatever you make. If you don't do that you can pretty much do anything you want and they shouldn't come after you.
Now... as this relates to our show... I still beleive we are going to postpone/cancel this show as the filming of episode 1 has taken nearly two months which is just becoming extensively difficult to pull off. I think instead we will wait (while I work my new job and earn some dough) until Halo 3 comes out and make a new show in that game... With all the kickass machinima friendly components being included in halo 3 chances are we'll be able to make an even better show using it than trying to mod (and mostly fail at) using halo 2...
Also, becuase of his loss, I've decided to give Takuia a part in our halo 3 show... don't expect me to do the same for any of you (well... that is SOMEONE else who is also getting the same treatment, but I'm not going to say who it is... but you know who you are ^ ^)