For those out there with Xbox 360 arcade units or who are low on HDD space are in luck today. As of today the Xbox 360 now supports USB flash drives for storage. This means players can download everything, including full games, onto a memory stick for super fast loading as well as save game transfer without any proprietary memory.
There are a few minor hitches though. The main one is that no flash card over 16GB is recognizable, however, up to two flash cards can be used at once.
I'm definitely pleased with this update, especially since I can now easily move game saves over to another Xbox if I want to play at a friend's place.
Source: Major Nelson