"At around the 37 minute mark of the PAX special, the Microsoft Rep explains, "The future plan is for definitely to support external storage much like we do on the Xbox 360.
"My understanding is that feature will not be there at launch because the team is working on some other things, but it definitely is on the list. I don't know when it will come in though."" - Microsoft Reply to IGN
I don't think this is bad per-se... if Microsoft doesn't wait too long to support them. Some games require you to install specific parts to their hard drive. So somebody with alot of games could run out of room fast. Hopefully it doesn't take them too long to support it...