hard drive compadability doesn't really have anything to do with the chip (as far as i know), its the xbox that has the issues. Which is probably why you haven't got much of a reply in this forum.....anyway, as far as I know, you can only use IDE/EIDE. no SATA or anything like that. no usb either, just regular old shit. I've heard some stuff about using like sata to eide adapters, but eide is usually the cheapest anyway, so whats the point? plus its extra work. thats all i know, I'm no hdd expert. but i just ordered a hitachi 250 from newegg cuz its only like $142, and I know it works.
good luck, if you need more specific info, check other places. there have been a lot of hdd questions in the newb forum lately, check the last couple pages.