Yea, you still need a mod-chip unless you want to do a game-save hack everytime you want to boot into Linux.

You only have to do the hack once. Then it installs a new dashboard with a Linux option in place of the XBox Live option. From there, you can start installing Gentoo or some other such distribution.

But overall, a hardware mod is easier to deal with in the long run assuming it is just being bought as a cheep PC and not a gaming console.