The config.ini file is just a refrence for your X2_5035 (or older) BIOS. What it does is let you selects diffrent colors for the Start up Flubber Animation, adjust fan speeds, select dashboard boot priority, stuff like that. If you wish to edit your config.ini file download the pc based application X2 Config maker. It can be Downloaded from the tools section on this web site. (Xboxscene.com/tools/orgional Xbox/BIOS tools)
Files can be add thru a disk, but is is much easier, and cheaper to FTP files. Here is a great networking tutorial that will have your Xbox connect to your PC in no time.
http://www.chefelf.com/xbox/networking.php