In order to connect to Xbox LIVE and enjoy everything the new Xbox Experience has to offer, you will need an Xbox 360 Hard Drive. While you can connect to Xbox LIVE using an Xbox 360 Memory Unit with 128MB of available space, you will not be able to enjoy all the great features like Xbox LIVE Primetime and video downloads.
If you have 128MB of available space, what are you waiting for? You’re ready to connect to the new Xbox experience!
Owners of an Xbox 360 Core - the now phased out model with no hard drive and no memory unit - will be offered one of three storage options. LIVE members with no storage or a 64MB memory unit will be offered a free 512MB memory unit or a 20GB hard drive. LIVE members with a 256MB or 512 MB memory unit will be offered just the 20 GB hard drive, while consoles which haven't been connected to LIVE in the last 12 months and don't have a hard drive will be offered a 20GB hard drive and a three month LIVE sub.
The Xbox 360 Arcade model is eligible for two of the above listed options. Xbox LIVE subscribers without a hard drive are offered the 20GB hard drive, while those not on LIVE and without a hard drive are offered the 20GB hard drive and three month LIVE sub for.
If you've got a 20/60GB Xbox 360 or Elite then you're out of luck. The New Xbox Experience is scheduled for release worldwide on November 19
Sounds pretty good although Microsoft's been ripping off people with xbox hard drives for years.