Hmph, it always bother me to see sexual contents censored while violent content doesn't seem to bother anybody. Which is more legal, though? Having sex with your girl friend, or shoting down cops? It's not as if it was a rape simulation...
Clothed people simulating having sex, seriously

... I've seen more explicit in countless PG13 movies/series.
As for haxoring games... is it legal? Gameshark and such are haxoring tools, but I've never seen anywhere they (or the codes they use) could be illegal in any way.
Game hacking is reverse engineering. From a "copyright" perspective, it might be legal in some countries, and illegal in others. In France games (being computer
software, that is code = text translated into machine language) fall under the "author rights" legislation, just like books or movies or music. And, so far, you can do whatever butchering you want to a "work of the mind" you legally acquired the right to watch/read/play/listen to... As long as you keep it to yourself, and don't distribute it (distributing an hacked software is like distributing the original software = pirate edition). However, distributing
only a patch might be legal, since it doesn't content the original work, just the instructions on the modifications to apply to the original work to get it working differently.
From a legal perspective, obviously the creators of the mods are responsible for their content (and not the game makers). But the GTA mod is a tricky issue, since the content was already within the game, and the mod just contained the key to unlock it. If someone was to blame, I'd say it would be either the GTA makers for putting hidden (half-published) questionable content within their game, or the player for using the mod and revealing the content (I mean they have no one to blame but themselves - the makers of the mod never lied about the nature of the content it unlocked)
Concerning addiction and video games, well obviously they can be addictive and wasting your whole life in front of a game is not "healthy" (socially speaking). But neither is wasting your life in front of your TV watching sitcoms, or in front of your computer, surfing the net. Or spending all your money in a casino. Or in the mall. Or working in your office 24 hours a day instead of watching your kids growing up. When it comes to such kinds of purely psychological addictions, the problem is more within the person than within the stuff they're addicted with. Usually if you remove that stuff they'll just find another addiction: it's the symptom, not the cause.
Games shouldn't be used as an excuse for being lazy

[spoiler](says the one who is surfing forums instead of writing her report)[/spoiler]
As for "game making people smarter", I think the studies tend to see a statistical correlation between "kids playing games" and "kids getting good results at school" : the "smart kids" play games. That's (or at least used to be - during the SNES era for sure, during the PSX era I'm less sure) a fact. Now, is it the games making them smart, or do they play games coz they're smart ? Or are they both smart and playing games because of the way their parents raise them? I suspect some studies to draw the first conclusion a bit too fast.
However, it's true some game do develop some skillz. Playing text-heavy games in a foreign language is a most efficient way to assimilate much vocabulary and grammar (although when it comes to translated games, the translation is sometimes far from perfect), for instance. Some sim games like Colonization and such, also contains lots of actual accurate info on the real world. As for games that don't simulate reality, they will often require logic to solve puzzles, organizational skillz to manage ressources, or just good old hand-eye coordination (which comes very useful in countless real life tasks such as driving).
It's no wonder some games (or similar, very game like softwares) end up getting used by the army to train pilots, or by psychologists to help a shy kid build self confidence, etc. The positive impact of
some games on
some people/in
some contexts shouldn't be underestimated. Then, it's all a matter of balance (and there are always ways to misuse an efficient tool)