It was reported on
tomshardware.com and other sites that the next dashboard update will contain software to permit up to 32GB of USB storage for the 360. It'll have to be in the form of two 16GB thumb drives or possibly external hard drives. If you use an external hard drive you will be limited to just 16GB per hard drive so I feel the thumb drive is the way to go.
Additionally, Microsoft has announced that the 250GB hard drive will be sold as a stand alone drive now. After all those months of saying they will only release it for special combo packs. Anyway, it'll replace the 120GB hard drive at the $129.99 price point and the 120GB drive will be phased out.
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here.