The way it will work is developers will have to say how much space they expect their game to take and it will have to be explicitly stated on the box. Even if they don't think they're going to require all the space in the beginning, they're supposed to give the expected upper limit they'll need. As Ian Lewis, software design engineer at Microsoft said, "Feel free to require 30GB for your game; that's just going to make your potential audience a lot smaller."
Microsoft says designers can get around the console space issues by offering up lower resolution models and textures, make areas off-limits and stream assets from their server. Silver Xbox Live users will not be required to purchase a gold membership, however everyone will have to pay for the MMO's subscription fee separately from the Live membership. An MMO with a separate subscription fee still sounds like a tough sell on a console, but for the right game, anything is possible.