No the backwards compatibility got updated and now you can play morrowind. You just need xbox live to download the patch. Also, if you don't have live, just call MS to send you a disc or something.
You are better off selling it to a friend or at an auction site, it woun't be worth your money for a trade in. As for the 360 not eing backwords compatible you can download updates from microsoft, burn them on a cd , put it your 360, and let it update. There arn't all games available for update and that may be enough but you are better off seling it now for a reasonable price and buy a 360 before the price lowers for the Xbox again.
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