not very good at explaining thing but here goes:
in my opinion stealth is an attempt to hide you chip and install from microsoft!!
a standard stock hard drive has C , E , X , Y , Z drives
most autoinstallers and stuff install stuff on your C drive, now the theory is that if you went onto LIVE it would be easy for microsoft to see that the contents of the drive contains software that they don't want there.
a stealth install is where the original files on the drive are untouched - for example instead of installing your new dashboard onto the C drive you could upgrade your HDD and install it and all other apps to your F drive.
bioses are now able to boot from the F drive.
So in summary the original hard drive contents are untouched and all other stuff is installed "stealth" onto a non MS partition on your hard disk. Originally this was thought that it was all you had to do to stop being banned from playing a modified box on xbox live.
please correct me if any of this information is incorrect.