On April 6th, we will be releasing a system update over Xbox LIVE for your Xbox 360 that will allow USB flash drives to be used for storing profiles, game saves, demos and more. I’ve been testing this feature out for a few weeks, and I have to say it’s really great. Once you take the system update on April 6th, you’ll be able to connect your USB flash drives to your console and head over to the memory section to configure your new storage device. Once you do that, the system will conduct a one time performance and integrity check to confirm the drive is working properly. You will then be able to configure how much storage to use on the device, up to 16 GB. The remaining space on the flash drive will be accessible by your PC or Mac. USB Hard drives may work, but like flash memory, you’ll only be able to use up to 16GB of space. Since performance on flash based USB storage is usually better, I highly recommend using flash based instead of spinning media like a hard drive…it’s just going to give you a MUCH better experience.

We’ve also enhanced the memory management functions, so you’ll be able to have better control on what you want to copy or move between storage devices.

A couple of points:

• You can have 2 devices connected to the console at a time, enabling up to 32GB of simultaneous storage.
• The system won’t just configure the device once it is connected to the console. You’ll need to head to the memory area in system settings, select your USB Device, and choose from Configure Now (Format and Configure the Full Device), or Customize (you can choose how much memory you want configured for Xbox360 from the free space on the device.)

While any flash drive can be used, we are partnering with SanDisk to release an Xbox 360 branded USB flash drive in May that comes pre-configured out of the box and ready to go. I’ll provide links to those drives once they’re available. Until then, starting April 6th (when we release the system update) you can pop any flash drive over 1GB into your Xbox 360 and configure it as storage.

I’ve posted a bunch of screen shots that show you what the experience is like with a USB flash drive, as well as a look at the new memory management screens.

Source: Xbox Live's Major Nelson

Oh yeah, if anyone has read the stories about a "300gb HDD coming to the Xbox 360", it's absolute rubbish. They saw Major Nelson's 300gb HDD and jumped to conclusions. It is in fact a development HDD (from their dev kit) he is using.

Argh updates for something im not gonna use. they should make it so whenever your going to use it then you have to have an update.

One thing I wish they could incorporate is iTunes support (so you can play iTunes purchases through the Xbox 360) as Zunes selection of is rather minimal compared to iTunes (or it's just me)!

I wish i could play music off of my iPod Touch :/