>Good plan, but vertex editing will only get you so far. ...
re: Model editing
The first version of ITEM_Tool (the name of the new tool) will have limited 3D model editing. I suspect the first batch of hacked DLC will be simple tweeks of existing items. Most of the existing models are small enough to fit (except for some of the big furniture items). Simple tweeking doesn't require 100% knowledge of the formats.
A full blown model editing solution is a lot harder. You need a greater understanding of the file formats (to both export and import the data into a small enough and compatible format). Also you need to pick a 3D editing tool. 3DMAX is way too expensive. Free options like Blender have their issues (ie. big install, complex, stability, and way overkill for what most people need, ...). This will evolve over time.
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re: USB Gecko
In the first version, and for any serious use, a USB Gecko will be required.
A non-USB Gecko may be possible (using a combination of gamesave editing and runtime 'codes'), but it will be very slow in comparison (ie. one SD card swap and Install to test every little change). This may be added after the first release.
The USB Gecko is relatively cheap (cheaper than the game disc, at least in the US).