So the leak was 100% accurate. On April 6th, Microsoft will issue an update that will enable your Xbox 360 to use USB flash drives (or hard drives) to be used for storing profiles, game saves, demos and more. As previously stated the maximum allowed drive is 16GB, with up to two of these devices attached. You’ll partition the drive upon initial connection and whatever isn’t used by your Xbox will still be accessible on your PC. Major Nelson recommends that you use flash based drives since they won’t have the lag often associated with spinning hard drives. Sometime later this year Microsoft and SanDisk will launch a branded Xbox 360 USB flash drive, which will hopefully (wishing) will be larger than 16GB.
Hit the ‘read’ link if you want the screenshots.