A new system update for the Xbox 360 has been released today to allow
storage via USB medium although a couple of pointers to take note.
Only up to 16GB of space can be used for the Xbox 360 as storage for user profiles, game saves, demos and more
The remaining space of your thumbdrive (if any) will not be affected. You can have up to 2 devices connected to the Xbox 360 at a time, which means 32GB of storage in total.
Configuration is not automatic upon plugging in the usb device, you will need to configure it via the memory area in system settings, select your USB Device, and choose
from Configure Now (Format and Configure the Full Device). The “Customize” option allows you to choose how much memory you want on your USB device for your Xbox 360.