Somebody correct me if I'm wrong, but I believe you can use them without a mod using a router, if the Xbox can get a connection to the net. I'm kinda sure I heard this answered before, but won't vouch for it (but, hey, if the PSP can play over Xlink, and they aren't modded, then....
Shout out if you can call bullshit on me. I'm on vacation and not on a fast enough line to search out that thread (I remember posting in it, though, so that's an additional Searching point).
And DVD or HDD, either way is fine.