Xbox 360 Arcade Console

The next month of the Xbox 360 preview program will be adding support for external hard drives, up to two TB in size. This feature was actually implemented due to it being one of the top voted requests on the Xbox Feedback website. Storage space is also receiving a different upgrade via the removal of an old process, reserved hard drive space. Now, the Xbox 360 will only use what space is necessary and the rest is free for any other usage. The update will be coming to non-preview members at some point later this year, but no exact date was given.

Source: Major Nelson