You can use Normal Portable hard-drives and memory-sticks or the xbox 360 slim hard-drive with your console. The only thing you will not be able to use is the old school stuff and old 360 hard-drives.
Keep an eye open in your emails if you're a gamestop powerup pro member. Over the holidays they had the 120Gb hard drive from the old xbox on sale for only $20. I took it apart and used that hard drive inside my slim.
That's probably a good idea. USB drives are okay however if the data goes corrupt say good bye to all your saves. The xbox harddrive is far less likely to do that and even if it does you can scream at Microsoft and they will replace the harddrive and give you a freebie like a 1 month gold pass for your troubles.
I have a 1 terra HD and I plugged it in my pc and it only showed up with 16GB haha. Yeah so the portable HD is flawed, typical of microsoft. So its offical, you need to buy microsoft xbox 360 hdrive if you want max memory :'(