I wholeheartedly agree with SCV, although I may trade some legal hacked Pokemon over into my legit cart for my own fun. But if I ever decided to take part in a tournament, I would breed and train from the ground up just like everyone else has to do. Legal or not, it's simply cheating to generate your Pokemon without putting in the same amount of dedication and time that it takes to legitimately raise such a team, and it's just not fair to those who did it the way they were supposed to. I hope the previous winners of Pokemon tournaments have been legit.
Wifi battles, maybe it's fair game, I'll have to think about that I guess as long as you don't brag about your record or lie about playing legit, I'd say it's fine (assuming your hacks are legal). Tournaments are the main point to stay very clear on here because they are a big deal and people gather and work hard for them, with prizes at stake. I wouldn't have a clear conscience if I won a tourney with any sort of hacked advantage over players that I beat, even if that advantage is simply the amount of time needed to create the team. The only advantage I consider "fair" is knowledge, and that's why I love Project Pokemon. =)
I do think it would be fun to play with strategies this way, though. Just get a friend or two with you on it and have matches with your hacked Pokemon, just to learn about how to handle various strategies and figure out what Pokemon you like working with. Then you can make legit ones if you decide to play serious.