Yes it’s true, the 404 page is still alive and kicking.
And in SharePoint there sometimes comes a time when you just need to change that 404 up a bit. So first steps make sure you’re place you modifed 404 page into your 14 HIVE\templates\layouts\LangID folder (english is 1033). There should already be a file in there called Custom404.html. You can copy modify and rename it something like SuperAwesomeCustom404.html
C:\Program Files\Common Files\Microsoft Shared\Web Server Extensions\14\TEMPLATE\LAYOUTS\LangID
If you have multiple WFE’s you’re probably going to need this file put on each one of them.
Then fire up Powershell and run the powershell code below.
$webapp =Get-SPWebApplication http://sharePoint2010site
$webapp.FileNotFoundPage = “SuperAwesomeCustom404.html”
And there a go. There’s more you can do with custom 404 pages than just kitty cats, and construction workers on a jackhammer. Maybe one themed out to look exactly like your site, with some text that makes sense such as. “Oh hey, looks like you’re gone as far as the web will let you go. Looks like there’s nothing here. Please turn around and continue your journey”.