a chip wont let you back-up games, you need to install a hardrive with more space, like a 120 gig if im not mistaken,
If you chip/mod your X-box though, you'll never be able to go online with it, MS had a mod protection system that once you sign on once, it detects the chip and blocks you from ever signing on again...
but if your not going online and dont really care if your x-box burns out and you dont give a fuck about the warranty, then put one in...its a lot better payin $5-15 a game than $19-59
i would mod mine but i wanna get online