Microsoft launched their Windows Phone 7 to the market last week, and hackers have already compromised the operating system to allow unauthorized code to be run, allowing users to run applications that Microsoft would normally not approve of.
The pieces started falling into place when user 'hounsell' on xda-developers.com noticed the a third-party application in the WP7 marketplace (Network Profile by Samsung) used native code, not Silverlight-managed code as all non-Microsoft apps should.

Upon closer inspection, he documented some interesting characteristics of the application that gave it its native capabilities  most notably a DLL called Microsoft.Phone.InteropServices, which if poked the right way provided COM access.

Building upon this, Chris was able to successfully code and deploy a valid WP7 application using the developer sideloading process to a Windows Phone 7 device that inherited the ability to run unmanaged code.

Even though this breakthrough pretty much provides root access to the core of the Windows CE-based system including registry and file system necessary for future jailbroken applications, the last and major piece of the jailbreaking puzzle remains sideloading an application on a common non-developer device, since such an app would never make it through marketplace certification.