No, you do not need multiple installations of the game for your different mods. The only time you'd want multiple installations is if you wanted to play with earlier Versions of the game (ie play without the latest patch).
You are also correct in that there is a mod picker program. There is a perfectly functional Version on your Gold CD (look under "extras".) There is also a more recent Version available from these message Boards, and that Version is also bundled in with the TDM Modpack. I'd recommend downloading and installing TDM and the modpicker first, then installing whatever other mods you want to try out.
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Through research I I think I will like TDM and Proportions, what is everyone's thought on those mods, how does TDM differ from BOD and Devnull.
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TDM does not change the standard game at all, it just improves the AIs and introduces new ones.
The changes in Proportions are mainly about economics and the rate of play.
Devnull is a festival of boy's toys =-) New ship sizes, new weapons, space monsters...
I don't know what BOD is.
As for combining mods... this can't be done easily in most cases. Pirates and nomads comes with an AI-patcher program that can convert normal AIs (including TDM) to work with P&N, but they will not take advantage of any of the cool new stuff in the mod.
Ultimate strategies and TDM are completely compatible becasue they don't mess with the technolgies or game settings, and FQM can be made to work with most mods without too much trouble. If you wanted to combine, say, P&N and Proportions however, you'd come across some real problems. You would effectively have to make your own hybrid mod...