The content you bought is "keyed" to your console ID and Live ID. When your friend took his HD out, you could have put yours in and you would be able to play the game since it was bought on your console. However, for him to be able to play it he has to log onto Live. So essentially your friend just bought you a game. : )
I do this with many of the arcade game in my house since we have two 360. I would buy content off my account but on my kids' console so they can play it when I am not log in. And if I want to play I just log into Live on my 360. This also nice as it let us play multiplayers game over system link.
You can transfer license but it transfer in bulk.
@skeeuk
If you change your console or send them to MS, they suppose to transfer the license for you but you still have to redownload the "license" key. However some games glitch and don't transfer correctly. My ticket to ride constantly go back "trial mode" but usually if I get out of the game and restart it will correct itself. Still it's very annoying.
