I really think the Arcade unit is not suited to most people.
You need the Hard Drive for So Many things.
There are always Game Updates that are Mandatory for Online Play and a 256 Meg Card will fill up quick.
Then if you want Map Packs, Demos, or to Play Original XBox Games you are gonna need the Hard Drive.

The Arcade unit is really there to Sucker people in with the $199 price.
Then you will end up buying a Hard Drive for another $100, then you will buy a High Def Cable for another $50, Then you might buy the Wireless adapter for another $100... It keeps going, I feel Microsoft is Trying to Nickel and Dime me to Death. Not to Mention XBox Live...

All in all My XBox 360 has cost a TON more than my PS3 did.
I bought both at Launch of each system.
My 360: Totaling $900
Console $400 + Wireless $100 + XBox Live $50 (Times 4 so far = $200)
Then I got the Red Ring of Death 3 Times so I bought this Arcade Unit as a Replacement $200.
My PS3: Totaling $600
I bought the 60 Gig at Launch.

Granted all the Prices have changed since then.

So It comes down to Quality and the Price to Play each system Online that I give the XBox Only a 3 Star Rating. I love the Halo Series which is why we keep the 360 around. Since I cannot trust the Quality we Mainly buy all Multi-Platform Games for our PS3. Also because Online is Free on the PS3 and we can have a separate profile for all 4 Family Members. XBox Live REALLY needs a Gold Pack for Families. The Buddy List is not real helpful when more than one Family member is sharing that online persona... and I cannot see paying $50 per year per person for Live... We have 4 Gamers in our Family and we are NOT paying $200 a year just to play our games online...

Now if you are buying an Arcade unit to Replace an Original XBox360 that is Having way too many problems like me then this is the way to go. You get a newer unit with a Warranty. It is Cheaper and You can just Snap your Old Hard Drive on to it and you are up and Running. This is why I call it the "Red Ring of Death Replacement Unit"