It's completely against the EULA for KOTOR, as far as I'm aware, which is why Bioware allows no discussion of modding at their forums.
When you use software, you're making an agreement not to use it in a way other than what the maker intends. For JO or JA, modding is an intended purpose laid out by the EULA.
Sadly, the number of legally mod'able' games is diminishing, which means that the good intentions of modders will put them in the category of 'undesirables' - like hackers, except instead of trying to take down computers and networks and gather sensitive info, you're really just trying to create game content.
I made a silly little program called Dragon, which is an animation tool for the GLA format, used in Jedi Outcast, Jedi Academy and Krakatoa.