Yes, but only for non-public matches. I remember in the days of MW2 running modded lobbies in private matches. So much fun with friends. However running into hackers in public matches when you are actually trying to play the game for fun is annoying. I realize though that so long as consoles are being jailbroken, there will be people that hack in public matches and ruin it for the rest of us.
There is much more to Custom firmware than modding, i agree with Joren, like for example i bought 4.5tb of Space and pirated a rather large amount of games, a good jailtime worth