If u dun intend to fill it up, a arcade unit is fine, and as of now I think the games that require a harddrive can be counted on 1 hard. (i only remember FFXI was one of them)
However, the 256mb internal is pitifully little (and those harddrives are really overpriced, unless u buy a 3rd party/hacked one).
So i would strongly suggest u buy a flashdrive(4-16gb) solely for the xbox use.
U can use the flashdrive to store DLC, demos and stuff, and its also much cheaper than a xbox harddrive (or the defunct memory unit)
A 16gb one would be a very good substitute for a harddrive, and u can use up to 2 at once for 32gb of storage, or buy a harddrive at a later date if u really need one.
Oh i forgot, u can install the game to the flash drive (if its more 8G or more, due to the game taking up 4 plus gigs or so i think), which boosts the loading time to virtually none and save ur discs from spinning (and creating a hell lot of noise), so u will want to do this!