Documentation obtained by Joystiq – and subsequently confirmed with two separate sources – reveals that "USB Mass Storage Device Support on Xbox 360" will soon be a reality. The document, authored by a senior software development engineer at Microsoft, states that due to "increased market penetration of high-capacity, high throughput USB mass storage devices, a 2010 Xbox 360 system update" will allow consumers to save and load game data from USB devices. The update is purportedly coming in Spring 2010.
Basically what this means is that if you have some form of USB memory, you can format up to 16gb of it and use it like a memory card, which means you can move official licensed things like Gamer Profiles, Marketplace Items, etc. in addition to game saves and profile items.
Previously, USB "mass media storage devices" would only let you view pictures or listen to music from your console. No, it doesn't mean you suddenly have all the magickal space you want, but 32gb ought to be plenty for memory card-purposed tasks.
Note that this will work with game installs, though the console will still require the disc in the tray for authentication.
They do specify that you can only use up to 2 devices at a time; no matter how many units you plug in, only the first 2 will be recognized. The system will give you two different formatting options: one turns the entire unit into a 360 Memory Unit, and the
other creates a 16gb partition for the 360 to use while preserving other files.
You can read the full story on Joystiq here.
*32gb = 2 x (16gb USB drive)