Dear All, I thought I would post this to help others like me who may be struggling to modify the vanilla game (races etc...). I have spent time on this forum and reading the mod guides looking for a solution, but couldn't find one. If someone has posted this info here already I couldn't find it sorry. Everytime I made a change to the core data files in notepad, I would start the game and always found that data from the vanilla game was still there - like it was hard-coded and unmoddable. Luckily after a few days and after almost giving up, I found the answer. In the "my documents" folder on your hard drive, you will find a Galciv2 folder with some saved files (For each version - I am using Ultimate Edition but playing Dread Lords at the moment). This is the way the PC remembers your old settings every time you play (Galaxy size etc....). If you delete the file corresponding to the one you are modding, your mods will work (don't do it while the game is running!). You can also delete your preferences as well, which means the game starts with factory settings every tme you start it.
if you don't do this you end up in a infinite loop of "vanilla game data" you can't get away from, no matter how many times you try to mod the core files.
Maybe this is a problem related to more modern windows systems that wasn't there in 2006? I am using Windows 7 64 bit. I hope this helps someone. It makes no difference whether you mod the core game files, or create your own modded files in the mod folder. You still need to delete purge these temporary saved files on you hard drive to successfully see you changes in the game. Also be careful to create modded files that go with each version. Don't mod a Twighlight file and then try to run it in Dread Lords or the game will crash. If you are playing DL, only use modded DL files with it.
Best of luck modding
HK