1. How would stage hacking work? Wouldn't you need to specify whether a part of the model is tangible, drop-through, etc?
Stage models are very much the same as character models, and collision models are no doubt in exactly the same format as the stage itself. Trust me, I'm fairly sure stage hacking won't be too hard. HOWEVER, stage PACs are compressed, so it might take some different variations of the tool, just like ASH and STASH were.
3. How far have people gone in making/editing models (though they can't be used yet).
Funny you should ask that, actually.. I might have a couple on queue.
5. Would this be as popular as PSA Hacking? I'm sure it will take more skill.
Well, PSA hacking and model hacking have this compared to textures. Trial and error. No model comes out perfect on a first try, even the developers of Brawl had to start over from the ground up once or twice to get what they wanted. In addition to that, model hacking offer a LOT more freedom than texture hacking; that freedom makes it take a bit more effort, and be a lot more time consuming.
Also, I take it I'm the only person that hates Mewtwo?
What are you on, how is modeling trial and error. You make the model, you rig it, once your happy with it you use it. It looks identical to the thing you see in your modeling program (minus the stuff in game like lights and filters and all that).
You only go from the ground up again when there is something SEVERELY wrong with your 3d file, like something that would be faster to redo the whole model.