Just to further the information mentioned in Llama's recent 360 "mod" of attaching a second HDD, and clear up any misconceptions people might have, it should be noted that generally any IDE->USB and/or SATA->USB adapter can be used on both regular 3.5" and 2.5" IDE/SATA drives.
In the referenced photos, you'll see I have an old 3.5" HDD hooked up to the 360 with a Bytecc BT-200 adapter (which works for 3.5"/5.25"/2.5" drives). Similarly, SATA->USB devices should also work.
Contrary to what some have already started to speculate, sadly you cannot play back video files from the HDD, nor any other formats/codecs that aren't already allowed by the 360's dashboard by accessing the "Portable Device" option. The dashboard limits you to viewing photos and playing music. This is however a nice alternative for those who do not wish to/can't install the Windows Media Connect application or MCE.