The New Xbox Experience Requires 256MB Storage Card, Minimum

It's no surprise that The New Xbox Experience will squeeze within a memory card—Microsoft wants to make the software upgrade fit on removable flash storage for Xbox 360 Arcade users who lack hard drives. But the company has made it clear that Arcade users looking to upgrade will need a 256MB storage card, not the smaller 64MB model. So in other words, not every user will find themselves able to make the upgrade free. But this sort of situation is exactly why you shouldn't buy a 360 without a hard drive.

http://gizmodo.com/5061077/the-new-x...e-card-minimum