Is it legal to reverse engineer a third party file format and develop an application which can unpack,re-pack and modify the file format?

It depends upon the safeguards established for the third party file format. Software files are copyright protected at the moment of creation. Some software providers are willing to permit others to go in and modify their software. They communicate some form of a license to the public to allow altering their files. Modifying a copyrighted work to provide something comparable to others/the public is copyright infringement absent a license. Others software providers provide security measures to try to prevent this reverse engineering. The law provided assistance to these software providers with the Digital Millenium Copryight Act. For instance, video games and movies have security in place to inhibit copying the files. Reverse engineering and altering the encryption/security software is copyright infringement and is criminally actionable. The copyright owner gets to decide in which format they want their work to appear. If I want to make a game only available on PS4, I have my right to do that. Perhaps I have financial incentive to do that. Regardless of your selfless desire to help poor Xbox One owners, you are not allowed to make my work available on Xbox One.