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I've trolled through the various forums on Steam regarding this issue and it would seem more to do more with the way the game is set up in steam than version mismatches.

The steam version of Dungeon Siege 1 runs well with mods it would seem. The situation is different with Dungeon Siege 2.

The primary reason appears to be the exe used with the steam version of DS2 which is designed to block multiplayer. All 3 guides on the Dungeon Siege 2 Steam Page for enabling multiplayer in Dungeon Siege 2 involve replacing this exe with another one. Additionally 2 of the guides also involve moving the entire Dungeon Siege 2 folder out of the Steam Apps folder somewhere else on your hard drive. It appears mods work after all of this is done. A rather drastic solution to the problem.

Another solution for at least installing the Legendary Mod is to use the registry fix to install the mod. Now this appears to work for some players and not others and you will not be able to use the ALLSaves launcher as it won't recognize the game exe. Again replacing the game exe with another will solve that issue or purchasing the Broken World addon (which can now be installed as it can find the original DS2 folder) and using that with the Broken World version of AllSaves or Succubus Manager will work.

The minor size differences between the retail boxed version and steam version of Dungeon Siege 2 certainly doesn't explain the glitches recently reported by an user trying to install the Legendary Mod with the steam versions of the game. The Legendary Mod is an addon and doesn't require changing any existing DS2 files.

Incidentally using the steam registry fixes can be problematic and it would appear from the ModDB page of the Legendary Mod that some users have inadvertently disabled DS2 by using it when not required. I have directed them to visit this site for help as its easier in these forums than over at ModDB.