If you've got a chip then installing a new HD is really easy. Download an auto-installer (I like AIDeluxe, but Slayers is pretty good too) and burn the iso. Most ATA hard drives will work, although you'll have to check and see if it's lockable if you want to be able to disable your mod chip (to go on live). As for size, anything works, but if you get anything over 137 gb, you're going to need a bios with LGA (I think that's what it's called, otherwise somebody correct me). Once you've got your auto installer disc, connect the HD and make sure the jumpers are set to cable select. Start up the xbox with the auto installer disc, and you'll be able to format the HD, and add whatever dashboard you like. If you want to be able to use xbox live, you're going to need a new eeprom, you can find tuts for that here.
Hope this helps
Kevin