Microsoft initially made the switch to internal storage in Arcade units last December, replacing the bundled 256MB Xbox 360 memory card with 256MB of internal memory.
"We want to offer consumers a bit more memory at the same low price so they can enjoy more experiences on Xbox LIVE," Microsoft said of the upgrade. "The Xbox 360 system software uses some of the included 512MB memory; less storage will be available to users. Additional storage (sold separately) may be needed for game saves, Xbox LIVE Arcade games, content downloads, personal file storage, and additional enhanced functionality. A hard drive is recommended for LIVE, and is required for some features."
Priced at $200, the Xbox 360 Arcade is the cheapest of the various Xbox 360 hardware models, and the only one that does not include a hard drive. At $299, the Xbox 360 Pro comes with a 60GB HDD, while the $399 Elite model packs a 120GB HDD. Of course, said hard drives can also be purchased separately in various size configurations.