Aw snap! Microsoft told us we never needed a hard drive. But it looks like they were wrong. Here’s what the official Xbox website has to say about that:

In order to connect to Xbox LIVE and enjoy everything the new Xbox Experience has to offer, you will need an Xbox 360 Hard Drive. While you can connect to Xbox LIVE using an Xbox 360 Memory Unit with 128MB of available space, you will not be able to enjoy all the great features like Xbox LIVE Primetime and video downloads.

• If you have an Xbox 360 Hard Drive or 128MB of free space on your Memory Unit, what are you waiting for? You’re ready to connect to the new Xbox experience!
• If you don’t have enough available memory, you can either clear some space by deleting unused saved content, or see if you’re eligible for a special memory upgrade offer.

So, it looks like the Arcade players out there are out of luck, unless they apply for the Xbox 360 Memory Upgrade Program. But that’s besides the point, how many of you out there currently don’t have extra storage space, or at least a 20 gig hard drive? And, how much longer until Microsoft screws us 20 gig users (like me) in the future, if they already haven’t?