Although still considered a myth by some people, the "Apple Kill Switch" has been a fear of many iPod jailbreakers since jailbreaking was first begun. Although its direct origins are unknown, it is to be noticed that when jailbreaking, sometimes an extra option will be allowed that disables the "Apple Kill Switch".
The "Kill Switch" (if it exists) would essentially take over and then render useless an iPod that has been found to be jailbroken. Although jailbreaking in itself is not illegal, Apple is strongly opposed to it. It also says in the agreement that Apple reserves the right to, in short, basic terms: "Kill" your iPod.
Although there have been no actual known incidents with the "Kill Switch", and hopefully there won't be any in the future. But if so, be warned: Steve Jobs is watching.

(If anyone can find any more information on websites it would be very helpful)
Also go to:
http://www.product-reviews.net/2008/08/11/steve-jobs-apple-kill-switch-confirmed/

http://www.informationweek.com/news/personal_tech/iphone/showArticle.jhtml?articleID=210000467