You'll need to apply the 360 update that enables the function to use a 3rd party USB drive. I believe it is this one-

http://download.microsoft.com/download/1...mUpdate9199.zip

Quote:

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1. Plug your USB flash drive into a USB port on your computer.
2. Click the following link: Download console update.
3. Click Save to save the console update .zip file on your computer.
4. Unzip the file.
* If you are using Microsoft Windows XP, Windows Vista, or Windows 7, you can just double-click the .zip file to unzip it.
* If you are using an earlier version of Microsoft Windows, you will need a separate utility to unzip the file (for example, WinZip).
5. Copy the contents of the .zip file to the root directory of your flash drive.
6. Unplug the USB flash drive from your computer.
7. Now plug the flash drive into a USB port on your Xbox 360 console.
8. Restart your console.
9. When your console restarts, the installation program for the console update will start automatically. When you are prompted to install the new console software, select Yes, update now.

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Then, after-wards, you can use your USB drive that is 1GB or more (max at 16GB) to transfer your saves. You'll need to format the drive first, though, which the 360 will do for you as shown in this tutorial-

http://support.microsoft.com/kb/981974