I recently purchased the 4GB Xbox along with Forza Motorsport 4.
The Xbox is great, but as others have said, 4GB is very limiting, especially when the OS takes a few hundred MB.
Forza 4 comes with additional content on a 2nd disc which must be installed to use. There's about 4 different collections of cars on there, but I found with the 4GB drive I could only fit 1, maybe 2 collections on the 4GB drive.
You can plug in an external drive (FAT32 format), but it only uses the first 16GB. I did read somewhere that it'll use all of a HFS+ formatted drive, but that didn't seem to work for me (it may have only been the original white Xboxs?).
In the end I went out and picked up one of the 320GB "Xbox 360 Media Drives" on special. It's basically a HDD with a special connector. The side panel of the Xbox comes off & reveals a slot for it.
I'd check the pricing on the bundles & accessories though - I got the 4GB Xbox (just the unit) for ~AUD$200 & the 320GB drive for AUD$120 (included Lego Star Wars III download). Most of the stores here are selling the 250GB model (just the unit) for ~AUD$350.