"The other shoe has dropped on the upcoming preview program for the next Xbox 360 update and it's going to cost you. In a post on the Major Nelson blog, Xbox's Larry Hryb reveals that this next update will lock-out unauthorized storage devices. As blogger Peter Smith reminds us, 'the Xbox 360 comes in two (currently) SKUs, one with a hard drive, and one without. The drive-less Xbox 360 Arcade unit is cheap ($199) but to realistically use it, you'll need to buy a "Memory Unit" (basically a proprietary USB stick) or an Xbox hard drive.... A 512 MB Microsoft branded Memory Unit goes for $29.99 at BestBuy.com. A 2 GB third party Memory Unit from Datel goes for $39.99, and the Datel unit is expandable using microSD cards....If you bought the Datel and it's full of data, between now and the launch of the new update you're going to have to run out and buy 4 of the Microsoft units at $29.99 each, or more likely, pick up the $99.99 60GB Live Starter Pack for Xbox 360.'"
http://hardware.slashdot.org/story/09/10/19/1959249/Xbox-360-Update-Will-Lock-Out-Unauthorized-Storage

Granted the PS3 fully supports expanding the storage yourself.  But then again, games still cost ~$20 more to play on the Xbox or PS3 vs the PC.

As a console gamer I can say I'm not worried. It won't be long before someone hacks a way around it. Besides, with the XBox's ability to stream media it's not that much of an inconvenience. Also, it won't be long before someone figures out a way around this.