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Legend11 said:
It would make sense though for the 20gig Premium to replace the Arcade SKU. It's just too bad that there are 360s out there without a hard drive.

I wouldn't worry too much about lack of an HD on all models if I were a software publisher.  If a 360 Arcade owner really wants a particular game that requires a hard drive, it can be added.  It's not like the low-end PS3s that were missing wireless but it couldn't be added, missing BC hardware that couldn't be added, etc.