A fault between the grounded conductor and the machine frame will _not_ cause a short circuit, and will not open the OCPD. This would be just like any other grounded conductor faulting to the machine frame, eg. the neutral faulting to the chassis in an ordinary 120V circuit. The machine frame would be energized, but only to the level of the voltage drop in the conductor. Ground fault detection can be set up to detect this sort of condition.
As to legality, corner grounded systems are code compliant, however they are not common which means that you can get bit on rules regarding switching of the grounded conductor and voltage ratings of breakers. See the appropriate code sections, but in general you can't switch the grounded conductor unless you disconnect _all_ supply conductors at the same time (there are exceptions for motors), and you would need to use straight 240V breakers, not 'slash' rated breakers that are rated for lower voltage to ground.
-Jon