Modding is being done on the PSX version. For instance, I am currently producing REBIRTH for the PSOne edition, a comprehensive rebalance shifting mechanics, element systems and battle AI.
Filesizes aren't necessarily an issue, but going over the normal lengths means you need to change various file lookup tables. Essentially, see my thread on the YAMADA.BIN for kernel / scene size changes, and Gemini's thread on translation tools for his file 'injector', to import new files into ISOs.