Updated statement from Microsoft on custom site definitions

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support.microsoft.com/Default.aspx?id=898631

Here's the meat, I have highlighted the key points:

Supported scenarios

When you work with custom site definitions or custom area definitions, the following scenarios are supported:

• To create a custom site definition or a custom area definition, you copy an existing site definition or an existing area definition, and then you rename and modify the new site definition or the new area definition. For more information about this supported method, visit the following Microsoft Web site: msdn.microsoft.com/library/en-us/spptsdk/html/tsptCustomExistingWebTemplate_SV01017467.asp?frame=true
• You modify the .xml files and the .aspx files in a custom site definition or in a custom area definition before you create new sites or new portal areas by using the custom site definition or the custom area definition.
• You deploy the custom site definition or the custom area definition. That is, you create new sites or new portal areas by using the custom site definition or the custom area definition. To modify the new sites or the new portal areas that you created, you use one or more of the following three supported methods:
• You modify the site or the portal area by using the user interface in SharePoint Portal Server 2003 or in Windows SharePoint Services.
• You programmatically modify the site or the portal area by using the SharePoint Portal Server object model or the Windows SharePoint Services object model.
• You modify the site or the portal area by using Microsoft Office FrontPage 2003.
Note These three methods are also supported methods to use if you want to modify the Default.aspx page in the portal site. Microsoft does not support using other methods to modify the Default.aspx page in the portal site.

Unsupported scenarios

When you work with custom site definitions or custom area definitions, the following scenarios are not supported:

• You modify one of the default site definitions or one of the default area definitions that are included in SharePoint Portal Server 2003 or in Windows SharePoint Services.Microsoft does not support modifying the default set of site definitions or area definitions that are installed when you installed Windows SharePoint Services and SharePoint Portal Server 2003. Additionally, Microsoft does not support modifying the .xml files or the .aspx files in the default site definition or in the default area definition.
• You modify a custom site definition or a custom area definition after you deploy the custom site definition or the custom area definition.Microsoft does not support modifying a custom site definition or a custom area definition after you create a new site or a new portal area by using that site definition or area definition. Additionally, Microsoft does not support modifying the .xml files or the .aspx files in the custom site definition or in the custom area definition after you deploy the custom site definition or the custom area definition.
• You modify the Webtemp.xml file or the Webtempsps.xml file that is located in the following folder: Drive:\Program Files\Common Files\Microsoft Shared\Web Server Extensions\60\Template\LCID\XML With one exception, Microsoft does not support modifying the Webtemp.xml file or the Webtempsps.xml file. The exception is the Webtemp.xml file. Microsoft supports modifying the Webtemp.xml file only if you want to hide a specific template. To hide a specific template, you modify the Hidden parameter of that template in the Webtemp.xml file.