Yes you can mod FO2. Have a look at the screens for our mod if you want to see how far you can push the POS FO2 engine (www.mutantsrising.com)
If you want to edit items check out this tool:
http://cubik2k.w.interia.pl/f2wedit/f2wedit.zip
To add new art you will need to create FRM art files, and there are plenty of tools to do that on NMA. Have a look at the tutorials on the modding wiki, there is also a very nice basic tutorial on NMA as well:
http://falloutmods.wikia.com/wiki/Category:Fallout_2_tutorials
http://www.nma-fallout.com/content.php?page=fo-modding
Say helo on NMA when you have some idea of how to mod. The modding section of NMA is very friendly. See you there.
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How do I get to the sprites? When I look in the core file there is nothing. Is it also possible to add quests aswell?
The sprites are in the critter.dat and the scenery and what not is in the master.dat /art directory. You can find undat tools on NMA. You will also need FRM animator to view them etc.