The collection as I see it here in the US is... with file sizes added to help in in your decision.

Halo (2.3GB)

Psychonaughts (3.9GB)

Ninja Gaiden Black (5.9GB)

Fable (3.2GB)

Black  (1.6GB)

Burnout 3 (2.3GB)

Pirates (1.3GB)

Crash Bandicoot (935MB)

Crimson Skies (4.1GB)

Fuzion Frenzy (2GB)

Indigo Prophecies (1.9GB)

I've had the Premium 20GB model for over a year now and I still have about 4 gigs left.

I've not downlaoded any Xbox 1 games but I have atleast 30 movies, 2-3 demos and 8-10 xbox live games.

Elite is cool but I would spend that money on extra controllers or games. Besides, its kinda fun when you're sorting shit out and deciding what to keep and what to delete...makes you feel like you're actually doing work...cleaning your xbox :)

Stubbs the Zombie, Halo, Halo 2, Morrowind, Outrun II, The Starwars: Battlefront games, if you didn't get 'em for your PS2. Dead or Alive. Project Gotham

There will be tons of great games added to the Xbox Classics on Xbox Live as time goes by.

^ Clarification: those games are not on there yet, but are sure to be added some time in the future.

If you don't have Ninja Gaiden, you need to buy that, coupled with the awesome Fable, you've just used 10gb of your HDD. DLC sucks up HD space aswell, GRAW chapter 2 is about 750mb alone.

 He has a PS3. The more complete NG is there and there is a chance he may already have it.

Also he seems to be an RPG guy (maybe why he wants a 360). The RPG content I have downloaded thus far has not even exceeded 1MB yet.

 The main Xbox games that I would be interested in are Jade Empire and KOTOR

 I don't really like DLC that much, cause the extra cost does annoy me, though I assume you can temporarily delete stuff and then redownload it later

Space the final frontier of gaming I suppose. The reality is very simple your probably not going to tax the smaller storage space in fact you probably will not find any great use for it in the first place. Everyone has pointed it out already, but I want to reiterate the overwhelming majority of material available for download on Live is incredibly overpriced.

Movies are more expensive and problematic on Live. A cable operator, dish provider, or even a Netflix provide far greater value on all fronts. The original games can be found on physical media for much less then Microsoft wants to charge. The rest just isn't all that intensive. Remove original titles and the television shows, and you have no real space concerns at all.

I cannot argue strongly enough against sitting on the fence however. That is a very flawed logic. You can't win if your not it. All you accomplish for yourself is that you keep falling farther and farther behind. The reality is that every console is at least going to see three more revisions before this generation is over. You follow the logic to inexorable conclusion and you should never buy a current generation console. You should wait till a generation is over, and probably kill off your community experience. Thankfully you can upgrade your 360 and if you have to have the absolute perfection then you could buy the latest model after the generation is over. Like a PS2 that is just over a hundred dollars now.