I maybe should have done a bit more reading up on the matter, but based on a couple of posts on some random forum I decided to buy the following drive WD My Book Essential 3.0 3 TB External Hard Drive (USB 3.0/2.0). It was the general consensus in this post that you just plug it in and it will work, the only stipulation was it needed to be fat 32.
It has yet to arrive in the post for me to test, but while I was waiting I dicovered other posts saying that the 360 will not be able to read the whole drive and that the max storage that it will see is 2.2 TB.
I know 2TB drives work fine, but I wanted a definative answer to whether the 360 will except the drive or not.
Thanks in advance