I posted about this in the BL2 forum. The modders toggled an option called "Badass mode" in the save file which enabled some code in the game that either wasn't finished or the idea was dropped. There's been some speculation about what "Badass mode" is; an invincibility mode for QA testers, a hardcore mode where you can't respawn, something connected to a future DLC, Gearbox aren't saying.
What happens is when you die and the "Fight for your life" meter runs out, instead of respawning all you can do is move the camera around. If you quit to dashboard or switch characters your save file is replaced with a file called "Graveyard.sav" which just has a few statistics about your level and how you died. What you should do instead is select Save and Quit from the pause menu, it'll tell you it can't save, but select to quit without saving anyway. At the main menu, select Continue and then when the game's loaded up, select Save and Quit to save a complete, but still infected, save file from the console's memory. Your save file should be fixed when you run the game after the patch is released. It isn't advisable to play the game with the infected character (and especially not over Live) until the fix is out.
There's a video showing what happens at: http://youtu.be/Glm_UL-Iqyg