Well, the PSO load method allows you to send anything to the GC (games, linux, probably homebrew apps (if there are any). The problem with the discs is more the size than anything. People make mini-CDrs in that size, but not DVDs. Someone should cut down a dvd with a dremel. Then burning the format may be problematic.
Yeah, streaming GC isos is slow. The DC homebrew scene is still thriving because it uses standard size media.
"The end of the modchip"? It's MS. M$ =/= security.