In the same boat as you, just bought one. I have spent the last two days researching and looking at tutorials. Seems confusing at first, but you start to get used to it. Also, the only con with them is having to buy stealth/kvs if you wanna go online!

1: Xexmenu - Its a little program that you install to your hdd or burn to a disc under game demos. It allows you to view all your content on your usbs, hdds, external hdds, etc. It also allows you copy, remove, and add files while in the menu. In simple terms, its a xport360 inside your xbox, that can do much more. You need xexmenu to run modded games. Its easily installed by dragging and dropping the file into your game demos.

2. It is confusing at first. But after you do it the first time it's like taking candy from a child.

3. You need xex menu. But when you are online, you want to use other programs like X360 neighborhood to launch games to keep you from getting banned.

4. It depends what you want to do with your console.

5. You can mod most games. Not all games have the same modifications.