Xbox360 now supports USB Storage
According to a Larry Hryb aka Major Nelson from April 6th 2010 Xbox 360 will support USB mass storage.
That will allow users to profiles, game saves, demos and much more. Up to 16GB of USB flash drive will be supported on Xbox 360. After updating all you have to do is connect your USB storage device with Xbox 360 and head over to the memory section to configure your new storage device. In order to increase storage capacity you can add 2 USB devices enabling up to 32GB of storage capacity.
Source: Major Nelson