Doug's Musical Ability, in GURPS

[Mark Skarr]

That was fast.  Kromm has responded and given us an even better way of doing it:  Morph.
This is why I buy video games for Kromm: he's awesome.  (I just wish I had the time to play them with him, right now.)

Kromm wrote:

Is it against the rules to use a Modular Ability to build Alternate Forms?

Not really. It's rarely worth the points, but you can do it. At the cheapest, you're looking at a version priced like Chip Slots: 5 points base + 3 points per point of abilities. Even if the only thing available is 15-point baseline Alternate Form, that's 5 + 3×15 = 50 points for one slot. Add on the necessary Physical, +100% and Trait-Limited, Alternate Forms Only, -30%, and you're at 85 points. At the most expensive . . . well, that's Cosmic Power (15 points; Physical, +100%; Trait-Limited, Alternate Forms Only, -30%) [255]. It's difficult to see how that's less fair than Morph [100]. The first has way more limits on acquiring forms (they'd need to be available in a DNA library or something), while the second is 2.5 times as costly and not a lot more useful.
Granted, either is a better deal than six or 17 specific Alternate Forms, but so is Morph, and that's 100% within the letter and spirit of the rules. In fact, Morph seems way better to me. I can't imagine why somebody would want Modular Abilities with Alternate Form, which means taking time to shift slots/points in the MA and then time to shapeshift, when Morph just lets you get right to the shifting.

Do you, Kromm, consider it "cheating" or otherwise "bad form?"

Cheating? Not technically, since it seems to hose the player. Bad form? Well, if a GM didn't point out the above math to the player, that would be bad form.
I think that what sometimes has people wondering about this issue is leaving out Physical, +100%. Here, you really need that modifier to cover all the traits that any race you might encounter might have. Without it, about all you can do is add skills and mental advantages, which with Alternate Form means taking on "races" that are human bodies with different brains inside.

ETA:
Morph (Unlimited +50%, Improvised Forms +100%, Cannot Memorize Forms (must always have song) -50%, Mass Conservation -20%, Retains Shape -20%, [Not so sure about those last two], Magical -10%, Trigger (Resonnating Song; Common) -20%; Cosmic +50%; Always On (Effects are dangerous; Mitigator: non-resonnating song) -16%; Reduced Time 5 +100%) [264]
ETA2:  Or [80] if you're using Multiplicative Modifier like I do.