Today you should receive a system update for your 360 which will bring USB Memory support to the console. You can read more about it in our earlier post here. I just received the update and had a quick play around and it all seems to work fine. You can choose how much space (up to 16GB) on your memory you want the 360 to use and will automatically configure and test the device when you start the customising process. I also noticed there is a Transfer Content option which I think allows you to transfer the HDD contents to another, maybe removing the need for the HDD Transfer Kit when you purchase a new HDD?
You can find a FAQ on the USB Memory here.
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