You can, but to install firmware updates the camera has to boot. If something goes wrong with the firmware update, or there's a problem with the hacked firmware that prevents it booting, you're stuck.
From having played with the firmware hack I think a lot of the limitations Panasonic placed on the GH1 are to do with encoder hardware limitations (recording in 1080p often makes the encoder crash) and making sure people can use their crappy class 4 SD cards without having the video stop due to the write buffer filling (would be nice to have the option to use more bandwidth on fast cards!).