I did this a month or so ago. At the time I had no idea what I was doing and was a bit nervous at first even though I had previously installed a modchip in my PS2. This is a bit different. It involves opening the 360, connecting the dvd drive to your PC, and backing up and flashing it with a new firmware. It sounded easy enough at first, but it wound up being a little more difficult.
My problem was that I had actually over researched the ways to go about it. There are more than a few ways to flash your drive, but if you choose the right method, it is extremely easy.
First thing to do is find out what type of drive you have:
http://pictures.xbox-scene.com/xbox360/dvd/TS-HLG.jpg
If it's a Toshiba-Samsung, I can help you. I have plenty of good links that will get you started.
And to answer your question, I don't know anything about 360 modchips (don't even know if they exist) but you just need a sata connection on your PC. If you don't have one, a sata card will do fine too. The sata connection is how you connect the 360 dvd drive to the PC for flashing. No modchip required.