Microsoft has confirmed that Halo 4’s multiplayer will require at least an 8GB USB Flash drive or an Xbox 360 HD. For optimal gameplay experience, Microsoft “highly recommends” using a hard drive. So if you own an Xbox 360 4GB, Arcade or Core models which do not come with a hard drive, you will need to take one of the two options outlined above. Checking out Xbox.com, Microsoft suggests the pre-configured Xbox 360 USB flash drives by SanDisk, which come in 8GB and 16GB capacities and include Xbox 360 update software along with room for your profile, game saves and other digital baggage. You can use other USB flash drives, but they must be configured as Xbox 360 memory units.
If you want to go the “recommended” route, Microsoft suggests the Xbox 360 320GB media hard drive, which includes the full downloadable Lego Star Wars 3: The Clone Wars. For all the details on your possible options, check out this link on Microsoft’s official position on the matter. The fact that Microsoft is coming out with this “suggestion” nearly five months in advance of Halo 4’s release is definitely an attempt to avoid any backlash from players who might have come across this fact at release time. Everyone remembers the whole Halo: Reach fiasco when folks learned that they could not play the game’s campaign cooperatively without a hard drive.
If you ask me, I would probably go the route of the USB stick, you can get USB sticks in the 64GB range for between $30-$40. That way you get all the space you need and don’t end up overpaying for one of Microsoft’s branded sticks which retail for the same price or more and give you much less space. After that, all you need to do is format that baby and you are good to go.