What's the proper way to collect
the Modern Library series?

Depends on why you collect. If you collect for the joy of it - which many people feel is the only proper way to collect - define your own criteria. There are dozens of ways to collect the series, and all of them are equally valid. See the Collecting Areas section of the article Collecting the Modern Library for some examples.

Having said that, If you think you may want to resell your collection later and recoup what you spent, concentrate on the best jacketed copies you can find. These need not be firsts; just excellent examples of whatever you choose.

If you're collecting for investment purposes (a pretty bad idea, by the way), then you ought to restrict yourself to only jacketed first editions in better than Very Good condition. Make certain that the dust jacket is a first printing match for the book.

There may be some appreciation in first catalogue Boni-Liveright ML jacketless first editions in Fine condition, but I wouldn't count on it.

Getting back your original "investment" or making a profit is, of course, a crapshoot. Collect what you love in the way that will make you happy, and you win automatically.