Worth it: the wii is catching up but the xbox is still the best homebrew console available: near flawless playback of 16 bit and earlier consoles and playable N64 and PS1 emulation too along with the ever fun XBMC media player.
I would avoid modchips purely as they have little advantage over a softmod and cost as much as an xbox these days for a half decent one. I noticed you said $20 though and that is about the price of a softmod kit (I would happily lend you mine but shipping would be kind of expensive).
If however you have a slightly older xbox (1.0 to 1.5) you may be able to bridge a couple of points on the motherboard gaining you all the benefits of a chip for the price of a softmod kit.
Hard drive: if you do a regular softmod then it needs to be "lockable" (locking is part of the spec but one rarely used so some drives do not support it), TSOP and chip can use any drive they like.
One list of drives:
http://xboxdrives.x-pec.com/?p=list
You can always try locking a drive yourself, if it does not lock it should still work fine. Just remember to lock it with a password you know or you will likely gain a brick (some drives have universal unlock codes, you will not save the data but you will save the drive).
More info:
http://www.xbox-linux.org/wiki/Xbox_Hard_D...cking_Mechanism
Softmodding has been covered many times but largely there are two methods:
Games: Here you get a hacked save onto the xbox, run the game (spinter cell, mech assault or a 007 game, load the save and install.
http://www.xboxscene.com/xbox-tutorials.php?p=151|#151 has more.
Hotswap:
Here you wait for the drive to unlock and then load it up on a PC before sending whatever you need across.
http://www.xboxscene.com/xbox-tutorials.php?p=151|#151 also has stuff.