For game installs I'd imagine so. But, if anyone with a 20gig drive just wants to add storage to install a few games, your options just got much cheaper and probably somewhat reasonable.
Arcade games will probably be tied to LIVE if you're on a different box.
Should also allow easy transfer of your gamertag. I've been far too lazy and cheap to pick up a memory unit. Should be able to just use a usb stick if I want to transfer upstairs. Hopefully gamesaves work this way too.
I doubt it. JTAG systems can already use external drives. You can already order larger drives that are mod'ed drives working on the xbox. No real loop holes to 'get around.' A legit system's firmware will only support 16gigs by USB. At least, that's how I see it.
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