To those that misunderstand the xbox 360 hard drive: It is simple:
To have backward compatibility on the 360, you MUST have a hard drive because emulators are downloaded. If you are just going to play games on it and not use all the interactive content, the arcade with a memory card will suffice and a hard drive is not a must.
With Sony saying BC is now a luxury, it exonerates the core *to some degree* since that is one of the big reasons to have the hard drive -- that and demos, of course. XBLA is fun, too, and will work fine with memory cards because the game size limit is 50 megabytes...