Is it legitimate for a user to ask a question about a hacked or modded game console, provided said question is about gaming on it?
For example, would/should we shut down a question about running MAME on a hacked classic XBox?
Modding a console is not illegal and doesn't hurt anybody. It will void your warranty (that's your problem, not the site's), and you can use a modded console to cheat (this is a separate issue - you don't have to cheat).
Modding questions can also be easily tagged as such, so you can ignore them or find them as you see fit.
So let's allow them.
There are two parts to this argument: Modding as a legal issue, and modding as a moral issue.
On the moral side, I'm in favor of allowing modding questions as long as they are on morally sound grounds. Cheating online, pirating games, and anything that affects other people's experience are (in my opinion, which I'm assuming is shared by others on this site) not morally good things. I'd rather not see them discussed here.
Modding enables plenty of non-harmful activities. Homebrew software, emulation, custom mods, imports, all that stuff. There's nothing wrong with that. (Again, in my opinion) What's the harm in sharing knowledge for this purpose?
Now, on the other hand, we have the legal argument. Modding is technically illegal in some places. Some people have said that because it is legally wrong it is also morally wrong, but I disagree with this. (My opinion is that the current legal state of mods is an unfortunate bug in the legal system that hasn't been patched out yet.) The legal argument is not one that we have the capability to make, since we don't own this site and we don't pay the lawyers. Stack Overflow Internet Services, Inc. does. It's their playground.
I don't know, I think the question should be allowed, as long as it isn't about how to actually hack or mod the console. I modded my PS2 and original Xbox to allow me to play import games. I think it would be ok as long as there aren't any links on where to download and how to do it.
In my opinion, we should, whenever possible, take the agnostic stance.
We know it is a possibility, but we don't help you doing it.
for your example question:
Absolutely not. For the same reason Server Fault doesn't encourage discussion of hacking people's computers, we should not tolerate discussion which breaks the ToS. That includes:
We exist for gamers to play games. All of these behaviors disrupt that processes. Cheating is unfair to other people playing games. Pirating and setting up private servers takes money away from developers so that they can make more games or enhance their current ones. Modding is usually in an effort to do one of the above.
I say they shouldn't be allowed. I can only see a slippery slope of pain coming from allowing that kind of discussion. There are plenty of forums out there dedicated to that.