So to get this right.. you are actually hacking the phatbox player when you do the hack?
Yes - that's exactly what happens.
What the hack does is remove the checks that the player makes on whether the DMS is an original or not. Once applied, the hack stays in the box, even when you change the firmware for different radio head-units.
Phatnoise did some clever stuff which made it impossible to simply clone the hard disk drive - that is why an original DMS must be used to apply the hack. It simply acts as a way of getting the hack into the box, and does not affect later use of the DMS. Once hacked, the box will not make those checks, and a DMS can be created using any parallel ATA style laptop hard disc (although there have been problems getting 250G drives to work so you are best sticking with 160G or smaller).