I haven't tried it out yet, but apparently with today's Xbox 360 update, you can finally use USB drives for read *and* write storage, which at least means Microsoft's proprietary memory cards are finally obsolete.
The catch is that you can only use up to 16GB, meaning it's a waste to attach a 250GB external hard drive. But it does at least provide an option if you just need to store a modest amount of game saves, profiles, etc.
Oh, and Sandisk is predictably coming out with a specially-branded 8gb USB flash drive for $40 :lol:
http://www.engadget.com/2010/04/06/xbox-360-update-brings-long-awaited-usb-storage-support-sandisk/
Better then nothing.