Yes, you have to edit the mods.cfg file.
I actually had the exact same problem with selecting the mods, it seems like you can select the first mod of the list though, I tried putting Quake Rally on there and it actually sort of worked, although after that the backpedal key just wouldn't work, but I did get it to work again by accident, when I changed the graphics settings... wierd stuff :S .
I do hope that this eventually gets an update, too, it seems like there's still a lot of work left, even though the game is almost perfectly playable, it would be nice to fix the water slowdown and the wierd bug when the particles are rendered as black triangles for whatever reason.
Still, awesome stuff, Caanoo needs more first person shooters!