I got by with the 256mb memory card for almost a year untill they updated the xbox dashboard & that took up 120mb space
Then i got a 60gb drive off ebay & had it filled with demos & games in a few weeks.
Id go with the bigger drive tbh dude, when you buy a new game, copy it to the HDD & play it that way untill you complete it or start getting bored or something. Forza 3 is almost unbearable to play from the disc cause the load times take hours!