You have many choices.
First up, if you want to get technical, you can buy a set type of western digital scorpio 2.5" drive (list of models available via googling), will set you back around 30-40ish (for a 250gb drive max allowed), you will have to hook it up to your PC and run a software tool to sort it out, after that you can use it.
Second option is if you have a previous 360 harddrive or want to buy a previous one (as theyre cheaper) you basically take the casing off it with some torx screw drivers and slot it, you can use any of the old model harddrives, 20/60/120/250 (guides available on youtube)
A note with these first two options, you can buy a casing unit for slim drives from dealextreme:
(there is another one for a tiny bit cheaper but the plastic is better on this one, they also have different coloured casing if that floats your boat). This will make it much easier to slot in and out and will pretty much make it just like the official thing.
Your third option is to buy a genuine microsoft 250gb slim drive (looking at around £65-70+)
Your fourth option is to use a USB flashdrive up to 16gb (you can use 2 usb drives for a total of 32gb), the 360 will format it and set it up.
When shopping for drives (unofficial ones in 360 casing) you will find there are plenty about, they will pretty much just be like in the first option except presetup, some people don't trust them, personally i'm split on whether you should trust them, after all they should be western digital drives as only WD drives are compatible with the 360. Any drive that isnt 250gb and is listed for the slim 360 won't be official.
Fair bit of choice there you can use http://www.hotukdeals.com/
to track prices over drives and such
Edited by FireFalcon (Sat 15-Jan-11 01:05:16)