Microsoft might have done away with third party storage devices as a so-called measure to prevent cheating on the Xbox 360, but they seem to have come full circle on the subject. It looks as though we’ll be able to use USB mass storage devices thanks to a software update coming down the line sometime soon.
The short and skinny is that most USB storage devices can be used to back up DLC, patches, Live Indie Games, Games on Demand as well as full disc titles. That same USB device can also be plugged into a Windows machine and all the data burned to a DVD or a backup server. Or in other words, keep a permanent backup of the data.
However, before running out to the store to grab that 2 terabyte external hard drive, there are a few limitations to be aware of — First and foremost, and perhaps the biggest buzz-kill of them all, the 360 will only recognize and allow the use 16 gigs of whatever you plug into it. On top of that, only two USB devices can be used at a time.
While the limitations feel downright constricting, the trade off of being able to permanently back up all the DLC and incidentals is well worth it.