You don't have to do a new install every time you use a different MOD but if Freelancer crashes then you know it's time to follow the steps listed...
Saved games will probably not be compatible after activating a MOD...you have to start a new game.

Instructions:

Some MOD's need a clean install of Freelancer...
Especially if you have used any MOD's before you need to do a clean install of Freelancer.
By clean I mean make sure you get a nice shinny new set of files.

1st... Delete your Freelancer folder.
C:\Program Files\Microsoft Games\Freelancer
Delete your Freelancer folder instead of uninstalling Freelancer to make sure there are no files that sometimes can get left behind after an uninstall, unless you check to make sure there are no files left in any of the Freelancer folder after you do a uninstall...

2nd... Delete or move any previous saved games.
You have to start a new game.
C:\Documents and Settings\your name\My Documents\My Games\Freelancer\Accts
Singleplayer and Multiplayer folders.
Either move or delete any files you find in the folders.
If you don't move or delete your previous saved games and start a new game they can cause a conflict and will make Freelancer crash, guaranteed!

3rd... Install Freelancer from the CD.

4th... Install the Freelancer SDK v1.3
Some of the MOD's need the SDK files to be installed but it don't hurt to do it anyway...
The Freelancer SDK is set of files (over 1200) from the original game of Freelancer, it contains fixes for all the major errors in the original source. And since modders use it to make mods with it also fixes the errors caused from decompression using bini (the program that is use to convert the files to into text format).
The SDK is an exe file...just browse to your Freelancer folder and install the SDK in that folder.
C:\Program Files\Microsoft Games\Freelancer
You can download the SDK v1.3 exe here.

If you don't follow all the steps above you will probably experience a crash or other problems.

5th... Then activate the MOD in the Mod Manager

6th... Have a blast.

For installing and activating/deactivating Mods use the Freelancer Mod Manager v1.31 - to download the Mod Manager click here.

To install a MOD into the Mod Manager double left click on the MOD file name that you want to install.
The Mod Manager interface will automatically unzip the MOD into the mods folder and the Mod Manager screen will pop up, click on the MOD that you want to use and then click on Activate. The Mod Manager will add/change the necessary files in Freelancer and then you're ready to play.

It is easy to handle mods (ehhrm - most of them). But you need to be aware that modifications change some/many game-files.
That is the main reason why you normally have to start a new game when installing a new mod. The info in the save-game does not correspond exactly with the content of the files. And that causes crashes.

But we have a nice tool for Freelancer: The Freelancer Mod Manager. after installing this program you can change from one mod to another by simply deactivating the first and activate the second mod. Link to FLMM 1.31
The Mod Manager even cleans your save-games and restores the existing ones for that specific mod again.

Sometimes even with a new version of the same mod you had to start all over again. But - as a hint - sometimes it may work to use an old save-game - of a former version, not from another mod.

You knwo, when I started using FL-mods I did everytime a complete backup of all files. But I never had to use it - thanks to FLMM.