turning open source software into a consulting business?

Quite a lot of questions. ;)

It's not a matter of modifications in the first place. You can fork RedHat's code, replace the public references to their brand with your own (not the copyright notices, though), and offer this as a new product. In fact, there's a rather well-known project who did this (I just can't remember its name right now.) And, of course, you will have to publish all modifications of GPL code you distribute in public.

However, offering training, services, and VA solutions is a wide field. You don't need a fork a project to do that. Rather, you want to use the established brand of the open source project you offer services for. This is what clients will be searching for. Mambo and Joomla are more of an exception than the rule.

There are quite a few people who've gone this road. This means being being a proper member and contributor of the open source project you use. You contribute back, establish your name as an authority, and you can sell services on top of the project.

To answer you other questions:

• Some open source projects have a trademark (eg. Linux) and you may need to deal with that to be able to use it in your promotion. But this depends on the project.
• Yes, the disadvantage is that there may be "more" competition. On the other hand, this is what gets you started in the first place. Again, you should try to establish a personal reputation/brand.
• Yes, some open source projects already promote lower TCO and transparency. From what I've read in the last five or six years, though, this is not as effective as some open source projects wish it was. Users (SOHO and enterprise) seem to strongly react to brands and social proof. RedHat's success is probably more due to them being the first mover, instead of any claims about TCO or lack of vendor lock-in.
• Yes, the barrier to entry is small and there's competition. But you will also have to deal with competition when you're trying to sell a proprietary solution. There are suppliers for almost every niche, already. And proprietary competitors often have more money, a well-known brand, and a product you can't simply fork -- ie. there are high barriers to entry.

Hope this helps.