There is no difference between two of them only the HDD :)
Xbox 360 4 GB
A second SKU which includes 4 GB of internal flash storage and has matte black casing (much like the Xbox 360 Elite).It replaced the Xbox 360 Arcade. Although this model has on-board storage, Xbox Product Director Aaron Greenberg confirmed that it does have a drive bay which Microsoft has "the opportunity to use in the future".[41] On August 20, 2010, Microsoft announced a 250 GB stand-alone hard drive for use with Xbox 360 S models priced at US$129.99.[45]
First, you must know, what are you going to do with XBOX.. from your Signature, you already have PS3, so i really doubt, you would download many ARCADE GAMES. As you also mention, you will buy games from retails, not downloading them.. So yes, i can recommend you the 4 GB model.. maybe later, you can easily buy higher capacity. Also, don't forget, that you can format 2xremovable drives (USB Stick) - one up to 16 gigs.. so you can have 32 gigs at all from them. But.. compare the prices.
I Would recommend you the 250 gig model.. This is why:
1. Installing games on HDD - you need to have the original DVD still in DVD-drive, but only for starting games. XBOX is then really quiet, much faster loading times etc.. (4 gigs are really the minimum)
2. XBOX Live Arcade games - there are plenty of great ARCADE exclusive games (especially Shadow Complex, LIMBO) - shadow has something round 1 gig..
3. Game Add-Ons - some are really huge.. over 500 Mega..
4. Demos and Videos - you know, how much you will need..
5. Price of the HDD.. if you will count it right, you will really have cheaper HDD with 250 Gig, than with the choise you mention (4 gig model 250 gig HDD)..
I got 120 gig HDD (have elite xbox) , and it is really fine.. 5 full games installed, and round 88 gigs of Arcade games on it.. still 20 gig of free space :) ..
It's up to you.. :)
The more I read the "console flamewars", the more i love my dreamcast :D
Proud owner of: Dreamcast, PSP, PSOne, PS2Slim, Xbox, Xbox360, Nintendo DSLite, GB color, GB Advanced, Nintendo Wii