Mods, I'm a long-time TR reader but first-time poster and intermittent forum browser. If this reply isn't compliant, I won't take it personally.
It's been a very long while since I've delved into modding, so I can't help you with detailing the alternatives. But I can say that the soft-mod is all that is necessary to do what you want. I'm not sure of the technical details, but it involves selecting the proper BIOS rom and configuring it to boot an alternative dashboard before you overwrite the original BIOS. But onto your other question...
Keep in mind that the Xbox's file system, FATX, is a completely different from NTFS or the FAT variants. This means that, without some dev tools or otherwise to specifically recognize FATX, your stock OS will likely not recognize a formatted Xbox drive, even if it's hooked up through a dongle to account for IDE. This also goes for utilities used to read the game discs, which are also burned in FATX (I think), so reading images through your PC's standard optical drive might be a non-starter.
That being said, most alternative OSes for the Xbox support copying straight from the drive. This includes my favorite, XBMC for Xbox, which allows you to copy files through its integrated file manager. Then, after you do that, you can also FTP files - including disc images - back and forth through your home network. Even though the hardware and XBMC for Xbox are over a decade old, the combo is still versatile enough to serve as a nice, yet relatively power-hungry media player.
Hope this helps!