Star Wars: The Old Republic's item modding system, you'll want to have a look at a lengthy post that just showed up on the game's official boards. The piece was written by BioWare associate lead designer Emmanuel Lusinchi and it clarifies a few things that raised fan eyebrows as the feature underwent various changes.
Lusinchi's wall o' text is more than we can fully relate here, since it pretty much sums up the entire history of SWTOR's item mod mechanics. Lusinchi pays a little lip service to the original iteration of the system, but he also calls it "less than stellar" despite fond remembrances of it among members of the testing community.
The ultimate goal of all the changes, Lusinchi says, is a polished system that preserves the concept of customization from earlier versions without sacrificing game balance. "To put it simply, we want moddable items to offer an alternate and optional loot system that allows players to customize their look and their stats with more freedom and without penalty for doing so," he explains.