Windows 98 was running emulated in vmware or bochs or something within debian lunux on an xbox. W98 doesn't work well on 64 MB of ram as it is, it works even more crappy emulated in a an operating system that has a 20 mb+ memory footprint translating machine instructions through a low end celeron processor.
As far as modding: I can do them for free, it is pretty easy. Look up how to use the UXE exploit, and how to do mod chipless hard drive installs. Its all on xbox scene.
Xbox media center look: Have you seen http://www.team-mediaportal.com/ ?