See this is the kind of post I am talking about. What great features am I losing out on without a hard drive?

Thank you to the people so far who are giving details. It actually has brought up a couple points I failed to consider (mostly backwards compatability for Psychonauts).

Oh and a bit of a follow up question since I hav some peoples attention. Is it possible/easy to move a save file directly from an existing 360's HDD to a memory card? As some of you may hae noticed, I currently own a couple 360 games and would really like to not start from scratch on them.

Don't some games you need a HDD to play? Or what if some day you would want extra content and you wouldn't have any means save it on. I would look up some of the titles but I don't have the time.

well its got a pathetic hard drive, the premium gives you 20 gigs of rock and roll

 I haven't heard of a single game that requires a HDD to play on the 360. At the least I know none of the games I want require it, and the ones coming out soon are extremely unlikely to.

I don't think Microsoft will ever allow games to require a hard drive, except for some very specific cases like MMOs which require an Internet connection anyway... Other than that, it would amount to telling Arcade owners to fuck off, and I don't think that's something Microsoft wants to be heard saying.

Regarding your other question about moving save files, no idea about that.

Try to play GTA IV without a HDD. It's UNPLAYABLE. And I think there will come more and more games using the HDD for saving some data.

It's unplayable? Maybe on the PS3...

Proof or it didn't happen.

Yes and component cables will cost you about $8 or so on monoprice, an HDMI cable will run you about $5.  You only need one.

@TheBigFatJ: Yeah, but apparently he only needs the composite cable so the Arcade is perfect for him except perhaps for the BC issue.