Question 1: Are these engines/libraries/tools hurting the modding community?
There is no denying that it's becoming increasingly popular for indie developers to use these engines instead of modding another game. A lot of large modding projects these days are being created using the Crysis engine and the only reason it's so popular is because it can be used completely independently of Crysis, using no Crysis-assets or resources. It's actually a more similar to tools like Unity than a modding toolkit like the Construction Set for TES/F3.
Question 2: If you wanted to get into the game development world, would you start with a mod or would you opt for one of the numerous freeware engines instead?
The quality of those tools has grown exponentially over the past years, it's becoming easier and easier to create games, even for the layman. Is that a good or a bad thing for modding?