mrstickball on 09 February 2009
1) Your best bet is a data transfer kit.
2) Transfer kit should port 100% of your data, including profile, onto the new HDD.
3) If they aren't transferred (as well as DRM) automatically, yes, it's easy. You can go online, and use it here. Just transfer ownership to the new HDD, and then get on XBL and re-download the arcade games if need be.
If your interested, you could always do the 120GB HDD mod...Get 120GB of memory for less than a 60GB HDD:
DIY is here: http://www.youtube.com/watch?v=3WR9inneEkA
The drive that is needed is a 'Western Digital WD1200BEVS 120GB 2.5" SATA Hard Drive 5400RPM 8MB Cache'. You can buy them for $54.99 here on newegg.com.
So $54.99 for a 120GB HDD may not be too bad 
Back from the dead, I'm afraid.
