I had this same problem recently and had to search to try and find a solution but didn't find any.
I use a X3CE, with a Propanel on a V1.0 Xbox. But I assume it is close enough to the 2.6 you are having problems with. I also wan't to get the word out because alot of people are having problems in this area.
Symptom: Modchip boots fine, but when disabled or removed (Pulled off LPC header and D0/HD/LAN disconnected from chip.) the Xbox turns on and off 3 times and then flashes red and green (FRAG) with no video or audio.
Cause: This means it is a Bios problem right off the bat, If the Bios loaded you would at least get either a generic or a numbered error code on the screen. Unless you didn't plug in the A/V cable in which case the box will flash orange and green (FOAG) with no video or audio, but that is a different guide all together.
What happend with me was my D0 wire became wedged in between the landing area for a screw hole on the motherboard and the grounded RF shield of the Xbox. So when I tightened the motherboard back in the case, the insulation on the D0 line chaffed and shorted to ground.
It is also possible that solder is bridged in between the vias where the D0 tap point is, but this wasn't the case with me as I took a NASA course on soldering, and I use 2% silver solder.
I don't care what anyone says in a how to guide that you find on the net by some guy that thinks everyone else is a f*ing n00b or encourages drinking while you are modding, but you should not attempt to solder D0 with a iron that came from Radio Shack. If you do not under stand what that means, you should not be soldering period. Using a 50 - 150 soldering gun on 25mil surface mount pads is the equivelent of doing brain surgery with a chainsaw. And don't trust idiots that come at you with the window de-fogger repair kit either.
Anyway...
Cure: To repair I cut off about 1 inch of the D0 wire, the part that was chaffed. Then I stripped 1/8" of insulation from the D0 wire and "tinned" it with solder, then I cut it to a length I felt suitable. Then I soldered it back to the D0 point. You can also just tape the chaffed part of the wire if you are a lazy bastard. Be sure to tape the wires to the bottom of the motherboard care of Scotch 33+ electrical tape, routing your wires around the "Pressure Points".
Or if you have a botched solder job, just suck the TSOP via area clean with a Soldapult or Pace micro solder sucker. Copper braid is almost worthless compared to a decent spring loaded solder sucker. Then once the area is cleaned, try attaching D0 again.
Explanation: In order to make the Xbox think the internal bios is corupt and go out to the LPC bus for a new one, the mod chip holds the D0 line to ground for 1/2 second during boot up. If the line is stuck on ground there is no way to boot from the internal TSOP as all the data read from it would be corupt, but you will still be able to boot from a modchip fine.
Another tell tale sign is if you also have the TSOP wired for onboard flashing like I do, Raincoat will not recognize the chip.
Other Symptoms: If the Xbox is doing the reverse, meaning boots fine with modchip disabled, you most likely have a bad or incompatible Bios flashed in the modchip or you are on a bank with nothing in it. Example, I am currently running 3944K in one bank of the Xbox and on the TSOP but the next version up which is 40 something is not compatible and the box will frag. Try booting your modchip in backup mode to get to Flash 3.0.1 by holding both eject and power in until the LED turns purple.