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Spring 2010 Xbox 360 update adds USB flash drive support
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The USB drive must be between 1gb and 16gb to work with the Xbox 360, and the Xbox 360 will have to format the device and perform a compatibility check to make sure it will work with the system and saved data. You will also be able to set up the USB drive to only use part of it for Xbox 360 related data, if you’d like.
As for what kind of data will be able to be saved to the USB storage units, well, it sounds like any kind! Joystiq reports that games downloaded from Xbox Live, Games on Demand, Xbox 360 games from discs, DLC and even game patches and updates will all be able to be downloaded, installed to and run from the USB devices.
There are some downsides though. First, each USB drive will have a 16gb cap, even if the drive has a larger capacity (like 32gb). Also, you can only register two USB drives with each Xbox 360. I also can’t help but think that the compatibility check mentioned by Joystiq could be trouble as well - perhaps Microsoft will put in place some kind of restrictions as to which brands of USB drives will, and won’t, work with the console.
Read [Joystiq] Also Read [Blend Games]
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