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Actually 3 to 5 GB is still a lot.
For demos, I don't know how long you keep them, but if I've tried to play them and find them lousy, then I just delete them.

I don't see any reason keeping them.

Also for music, does that mean you burn them on your 360? HOw does that work?

For music, I just use our PC through Media Center, then I have access to 500 albums. no need to actually burn it on the xbox...