In grails 2 and earlier, plugins installed their source to .grails/<version>/projects/<projectName>/plugins/etc, this made it easy to debug plugins that were installed without having to check out and load the full source... find where problems were that could be hot-deployed. No need to install run the plugin locally.
In grails 3, this seems to be missing... or maybe I'm just missing something? Is there somewhere in my project I can directly modify the plugin source without checking out the plugin, compiling it and then installing it locally?
Yes, you're missing something rather important :)
Grails 2 plugins are distributed as ZIP files including source code, but Grails 3+ plugins are distributed as JAR files with the code compiled into classes. This has multiple benefits over the earlier approach, the biggest one being that you can no longer edit the source directly (which is the worst way to make changes to how a plugin works).
What you should do instead (in all versions of Grails) is to take advantage of the compilation/load/resolution order between the app and the installed plugins - plugins load first, then the app. This allows you to override nearly anything in a plugin just by creating a file (Groovy/Java/GSP/etc.) with the same name and same relative location in your app code, and it will automagically override the plugin's file or class. E.g. to override a plugin's com.foo.BarController controller, create grails-app/controllers/com/foo/BarController.groovy in your app (manually or by copying the original source and modifying it).