What is acceptable when it comes to modding and play. I'm sure it perfectly ok to mod my Boom-Boom into a Jubilee and play around with my friends. But what qualifies as illegal in competition? Are there different levels of competition that some are okay and some aren't?

Can I repaint a Cyclops into an X-Factor costume? If I just repaint the figure with the costumes colors, is that legal? If I cut at him a little to get that strap-dealy off and make his head bald, then repaint him, is that legal?

I'm pretty sure that if I take a rookie Ultimate Storm, cut her off, and replace her with a Pikachu that would be illegal.

This is a side-note question, but I'm just curious. What if I show up for a tournament, with CT's Dr. Doom on my team. I go to play it, but it turns out I brought the Doombot figure (with closed fist). Can the judge be extremely anal-retentive and disqualify my team because of the wrong figure? Or would that be okay, as if I modded a Dr. Doom to have a closed fist instead of the open one?

From the Complete Tournament Rules

The head envoy may, at his or her discretion, disallow the use of any figure that is painted in such a way as to disclose the statistics for the figure, conceal information on the base of the figure, or mislead other players as to the type or nature of the figure. A figure whose dial has been modified in any way is also considered an illegal figure. The envoy shall be the final judge in any discrepancy involving an illegal figure. If a figure is discovered to be illegal during the course of a battle or tournament, the player using the illegal figure loses the current battle and is disqualified from the tournament. While these rules are explicitly directed at miniature figures, all WizKids games and game components are subject to this
policy. The head envoy of any event may disqualify any game piece that is modified in an intentionally or inadvertently confusing or deceptive manner.

At the end of the day, the call is really up to your judge. If you want to play your modded X-Factor Cyclops, bring it to your tournament and ask. Just be prepared with a back-up figure in case you are told "Nope."