Using Flash Drive as memory unit for 360

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A memoery Unit or a Harddrive for my xbox is to expensive for me to buy. So i got the idea that I could use a Flash Drive, like a 156MB one, or a 1 gig one. But how do I make it compatible with my xbox 360? if there is a way that is?
I have been told that you can hook an external USB Hard drive to the XBOX 360. Like I got a spare external 40Gb Laptop drive that I plan to use. I have just not gotten around do doing any thing with it.

External Hard drives are better $ per Gb. However I would choose a notebook hard drive as the enclosures can be powered from the USB.
 
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