So, I recieved my xbox today, first one I ever got, when you open the box you can tell that this is going to be a fun machine, the look and graphics are amazing. I already have downloaded a game from the xbox live arcade (you get a free month of live for this purchase), and bought a game. The 4gb advertised is more like 2.9gb after the formatting and operating system.
However, I found a 16gb flash drive laying around my house, I plugged it in to my xbox, formated it, and got 14gb's of more space. (XBOX ONLY ALLOWS UP TO 16GB FLASH DRIVES) Bumping the space from 2.9gb to 16.9gb of space which is alot considering that the average game without addons is 30mb, which gives you plenty of space. However, not all flash drives work with the 360, you have to plug them in format them then it will tell you if it works. I will add a product link for the 16gb flash drive I used which I am super happy with. 16gb Duracell Capless Usb This USB is amazing and gives you 14gb on the xbox (xbox takes some for settings)
There is also a certified 8gb one made by sandisk. I have never tried it, but it looks more expensive than this one.
It's a really great system to play on, and so easy to set up.