Earlier today Major Nelson announced that an April 6th dashboard update will allow USB flash drives to be used with your Xbox 360 for almost all functions confirming and earlier report.  See below from Major Nelson’s blog:

On April 6th, we will be releasing a system update over Xbox LIVE for your Xbox 360 that will allow USB flash drives to be used for storing profiles, game saves, demos and more.  I’ve been testing this feature out for a few weeks, and I have to say it’s really great. Once you take the system update on April 6th, you’ll be able to connect your USB flash drives to your console and head over to the memory section to configure your new storage device.

Click here to read about all the information regarding this update.

So now if you have an Xbox 360 Arcade you can add some memory on the cheap making the Xbox 360 one of the best values in gaming.