the modchips are also firmware mods, the difference is they do not replace or touch the 360 drive's original firmware, all they do is load the hacked firmware when its needed to read a backup, compared to flashing which completely replaces the original firmware. This is supposed to make them more safe for going undetected on Live and getting updates and such since the original firmware is left untouched.
I think some modchips let you update the firmware that it is using so thats probably what you were reading about, but you shouldnt have to do anything to actually get it working other then solder it correctly. Assuming it is compatible with your drive and you created the backup correctly that is.
Me and a friend did one 360 with NME-360 and it worked right after installing the modchip by following team underdogs guide on how to create a backup:
http://team-underdog.com/howto.htmlIm still pretty inexperienced myself tho so I am not sure if there are other ways to make backups or not, but that is the method I used and it worked for me. Well that is untill we attempted to solder the optional network off wire and killed the whole 360
