[ac2u]

You didn't have to physically mod the Dreamcast console.

An exploit was found due to the console support for CD's with multimedia support, called MIL CDs. Initially a bootdisc was needed which you swapped with a CD-R, later all dumps of games were done in such a way that the exploit was bundled.

You are correct though in that some games used the full 1GB+ capacity of the GD-ROM format and assets had to be removed/compressed in some cases.