While the hard drive that came with your Xbox 360 (unless you got the Arcade edition) may be plenty big, there's still some trouble when you want to take your game somewhere other than your own console. While bringing the hard drive is easy enough, using something as small as a USB device, or Microsoft's Memory Unit, would be preferable. Microsoft is looking to make the former happen, with a software updated that's coming this Spring.
According to Joystiq, they've confirmed that Microsoft has put into motion a software update that's supposed to be issued this Spring. There aren't any other details about the update to mention, but the addition of USB storage is pretty big news. Microsoft was pretty determined to push their Memory Units (which amass to 512MB), so this means you can use a USB memory stick of any size to move your files.
So, what can you move? Xbox LIVE Arcade games, Xbox LIVE Indie games, Games on Demand, DLC, and Title Updates. Oh, and you can put full Xbox 360 games on there. Yes, you read that right. Instead of installing the game on the hard drive, you'll be able to put it on the memory stick and go on your way. Of course, just like installing the game to the hard drive, the disc will have to be in the disc try to authenticate the product, but that's nothing new. Anyone else as excited as we are for this?