the 360 hdd allows you to save the game image to the console and play from the hdd with the game disck in the drive for verification. a 20gb hdd it is worth $25 just for the quieter experience. you can also hack a wd120gb hdd and upgrade the 20gb drive for under $60.
however, it should also be noted that the retail $200 arcade consoles include 256mb of memory for gamesave storage and for the nxe dashboard. supposedly this is now increased to 512mb. neither is actually enough space to rip your games for quieter gameplay, but enough to download the divx codec, netflix player and to save your place in a game.
it should also be noted that there will very likely be another 360 price drop - as soon as sony announces their own ps3 price drop.