Ok...listen carefully...here is what he should do.
Get the arcade - $199
Buy a used hard drive 20gig - $40 tops
Buy this to get xbox live membership for 13 months and headset and a keyboard pad(doesnt come with the arcade model)
http://www.amazon.com/Xbox360-12month-Messenger-GoldPak-Xbox-360/dp/B001EKTF60/ref=sr_1_8?ie=UTF8&s=videogames&qid=1223438158&sr=1-8
Sell his memory card and pgr4 if he doesnt like it - ~ gets 30-40 bucks back
All he needs is an hdmi cable or composite cables if he has an hd tv...
That all should be less than 300 bucks