No problems here. Haven't even heard of any real problems.
Mine is external, I mounted an IDE socket on the side of the xbox, and feed the original ribbon cable out the back.
I have a PC-DVD and HDD in a little frame next to the xbox, and I switch between retail/hacked drives by swapping the plug.
btw, powering only one drive at a time like the Project 411 leads to lots of 'disc is dirty' errors, as the drive electrics can still be driven off the ribbon.. It doesn't work at all with switching the DVDs, which was my goal more than the HDD.
All the same, props to that guy, as it inspired my ghetto 'mod' - I used the same 4 pin CB connector as he did for my power lines.
Could be heat, but I doubt it. It's probably better ventilated in the xbox than it would be in many cases I've seen.
Maybe newer/bigger drives are more sensitive to static? There doesn't seem to be alot of grounding in the xbox.