The HDLoader only installs valid PS2 disks.

Of course if your PS2 is modded then you can install burnt games.

And I suppose I could load rental games on too.

So - Yes and no. I suspect they'll be shut down by Sony before too long (like the Nintendo vs. Lik-Sang.com GBA ROM Flasher affair.)

I personally don't have a modded PS2 and have bought every game I have.

But it's certainly nice to be able to use the PS2 like a Jukebox.