There's a good howto here. With this method you can upgrade your console without ever opening the case. All you need is a memory card, a particular rented game, and a Gameshark-like device called the action replay (or a friend's modded xbox).

They promise an update explaining how to add a larger hard drive with the softmod method — important, because the xbox's built-in drive is only 8GB. That's large enough for a decent number of emulators, but not much else.

But I'm more interested to hear if a softmod can be made to play nicely with Xbox live. Connect to XBL with your modchip turned on and your xbox — and perhaps your account — will be banned for life. But if you flip your modchip off before booting up (and don't make any other really egregious mistakes), you can play happily. Seeing as I've got at least one more modding job on the horizon, it'd be nice to know if it can be accomplished satisfactorily without shelling out for a modchip and firing up the soldering iron. That d0 connection point is a real bastard.