From many internet reports it seems Microsoft is pondering the future of data storage on the Xbox 360. What many seem to have good indications on are that an update will arrive late spring / early summer allowing for data to be stored on a USB Mass Storage device.
However, you can only use a maximum of 16GB and the USB storage device has to be in the form of a USB Flash Drive. Apparently you are able to use a larger than 16GB drive, but it will be formatted by an Xbox 360 with a 512mb partition and UP TO 16GB storage space.
This will provide consumers with a lower cost option for adding more secondary storage to their Xbox 360. More so with the falling prices of flash memory, you are now able to purchase a 16GB drive for less than £20.