Following the launch of Halo: Reach, we reported that the game's co-op functionality requires an Xbox 360 hard drive. This was of particular concern to those who had purchased one the newly released 4GB Xbox 360 S models. At the time, we were told that the issue was "temporary" and that Microsoft was "working to resolve it."
Repeated attempts to confirm with Microsoft when the situation will be resolved have been met with assurances that the company would let us know when there's an update, though no further details have been provided. It's currently unclear if and when the issue will ever be fixed, so consider this a PSA: If you've been holding off on picking up Reach until this particular shortcoming is addressed, you may want to start shopping for hard drives instead.
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