An article by examiner on the topic
The introduction of the Xbox 360 S (aka Slim) came not only with a new case design and updated internal hardware but also a change in hard drives. Instead of the caddy that holds a hard drive on the side, the updated console has a slot on the side to insert the hard drive. With the latest introduction of the hard drive less Xbox 360 S Arcade, Microsoft held off on selling the new hard drives separately until now.
GameStop has the 250GB hard drive for the Microsoft console on sale for $139.99. For most, this acts as an incentive to purchase the Elite version of the console that comes with the hard drive as buying the Arcade and hard drive separately is $40 more.
While you can use USB flash drive and hard drives for up to 16GB, we've found that the internal hard drive is preferable if you plan on downloading games and content or installing games on the hard drive so the DVD drive doesn't get too loud as it spins.
For now, it only appears that GameStop is selling. A quick check at Amazon, Best Buy and other retailers doesn't bring anything up. We'll update this article when we see more.

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