If you want to save your game progress on your Xbox - You need a memory unit of some type.
Premium console owners or Hard disk drive owners have 20 gigabytes to store game progress, download demos and game trailers and Xbox live arcade games.
This memory unit will only let you save the progress of around 10 games. you won't be able to download anything of the Xbox live Market place.
I suppose if you want to be able to transfer your xbox live account or game saves to someone elses console then this essential.
For me though - Find the extra money for a hard drive