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I haven't seen anything regarding built in flash memory, but with the use of flash drives and how cheap they are, I don't think it is necessary at this point either.  If I had to take a guess, I don't think we will see a 360 sold without a hard drive from now on.  They will only have the one sku for $299 until the release of Natal.  Then they will go back to the 2 skus. One with Kinect, one without.  I expect to see them sold at $349 and $249 respectively.  All of that is purely specualtion on my part.

Not having hard drives on all their systems was a mistake for Microsoft.  I think they are going to rectify that mistake.