Usually you edit the evox.ini file in the gamesave (Assuming it comes with EvoX) to point to where you put the games & apps. If you make folders such as E:\Games & E:\Apps, EvoX will auto add what's installed inside of them to the list (as it checks to see if anything is in these folders). Your Xbox will boot fine, just as a normal Xbox (Reading originals, going to the Xboxdash, etc). The only thing that can cause conflict is if you delete files you shouldn't or load the Xbox up with so much stuff it cannot cache itself or save gamesaves/soundtracks.
The 1.6 will be cracked, eventually. They are working on bios as we speak for modchips. TSOP flashing is technically not possible because 1.6s have no TSOP to flash. Softmods will probably not happen until they can figure a work around with the newer kernels.
I personally recommend Mechassault. Not only is it a XBL 1.0 game where you can get dashboard 4920 if needed from upgrading, it's overall, a better game. The general rule of thumb is to stay away from Platinum Hits, GOTY editions, and XBL bundled releases. However, the correct MA Serial Number is: MS02301L. If you cannot find any luck in stores, try eBay.
Gamesaves must be loaded everytime by the original game--if you want it to run from your hdd w/o the game, a dashboard exploit needs to be installed. As long as you don't alter any of the files on the Xbox or load up PBL from the gamesave and attempt to on XBL, you shouldn't have a problem.