Is it possible to play SystemLink-enabled Xbox 360 games over a virtual LAN?

Solution 1:

You and your friends could also get a router that supports VLAN's as well, and connect that way. But the lag may be a problem.

Solution 2:

Haven't tried it yet, but I suggested to my friends that we use Hamachi.

I haven't seen anything that would indicate that using Hamachi for this purpose would be illegal, but as always, check local laws, the EULA, etc. if you're concerned.

One of the limitations is that your Xbox connection has to go through your computer, typically requiring 2 NICs, and that those connections are bridged. Also, you won't get LAN speeds or pings, which may degrade performance.