that this was happening, but now Major Nelson has gone and made it official: mass storage is coming the Xbox 360 at long last. There will be a system update on April 6th, which will allow up to two simultaneous USB flash drives plugged into the system, which will be capable of storing profiles, game saves, demos, "and more." The maximum size supported is 16GB, and even though regular USB hard drives will be supported, they'll be up against the same size cap, and performance will suffer as well. You'll have to manually format a USB device for use in this way when plugging it into the 360, but Microsoft will be partnering with SanDisk for a branded drive in May that will come preconfigured. Also tweaked is the new memory management screen (what convenient timing!) which should make shuffling around these files less of a chore. Check out some screenshots below.
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Xbox 360 mass storage screenshots