We told you about the Microsoft storage upgrade program that is targeted at Arcade/Core owners by offering them the option to upgrade to additional storage. The program allows users if they qualify to pick up either a 512MB flash memory card or a refurbished 20GB hard drive, depending on your situation.

If you happen to own a Core system with less than 128MB of storage, you can either get a 512MB memory card for free or a refurbished 20GB hard drive for $19.99. If you own an Arcade system you will likely be eligible for a refurbished 20GB hard drive and three months of Xbox Live for $29.99.

This is all well and good, but if you plan to use the Netflix option that will be a part of the New Xbox Experience, that will take an extra 8MB which raises the requirements to 136MB of storage required; and if you plan to store any additional content, you will need more storage.

This clearly once again raises the question: “Why isn’t Microsoft offering larger storage options?”  Microsoft continues to offer the 120GB hard drive upgrade, and while this option has fallen a little in price since its introduction, it still is basically over priced when you compare the 120GB SATA drive to typical 120GB SATA notebook drives that can be had for between $50 to $60.

The 120GB hard drive from Microsoft retails for a whopping $149, but does include the transfer cable and software to allow you to migrate from your existing smaller hard drive to the 120GB hard drive. But, we can’t see paying around a $100 premium to migrate your data over from your old drive.

For less than $90, you can pick up 320GB hard drive and, of course, Microsoft’s buying in quantity could likely do a bit better than that price; which means that would allow them over $60 for packaging, transfer cable, and profit. It just seems foolish that Microsoft would continue to not offer a larger hard drive as an option.

This just continues to underscore the bigger problem, which is the move to users being able to download and store more content on their hard drives. With the upcoming Xbox Experience upgrade, users will now be able to copy entire games over to their hard drive, as well, which will even make more of a dent in the available hard drive space on their Xbox 360.

The move on the Pro system to 60GB was driven more out of necessity, since the majority of hard drive manufacturers are no longer even making hard drives with 20GB of storage because platter capacity has just moved beyond 20GB, and 60GB platters are where they are at, at the moment. The hard drive manufacturers don’t stand still and this begs the question, “Why shouldn’t Microsoft just bite the bullet and offer larger hard drive options as drives are refreshed once per year?”

While we suspect Microsoft continues to push toward downloadable content, bigger hard drives will become a necessity, and it is just a shame that Microsoft continues to move so slowly to introduce them. We think the decision to make an affordable upgrade available to those that don’t have a 20GB hard drive yet is a good thing and something that we don’t ever think we have seen a company do for its users.

However, in the long run Microsoft is gambling that they will make their money back on stuff that you download to fill up that 20GB hard drive and better yet… when you figure out that your 20GB hard drive isn’t enough, you will have to upgrade to a larger one.

Still, in the end, the move to offer the 20GB hard drive (refurbished or not) is good for Microsoft as they likely have a lot of these drives sitting around that no one wants. If you lose a hard drive and have to buy one, you are certainly going to buy the larger 120GB drive, not the 20GB drive, when they are putting 60GB drives in the Xbox Pro systems now.

We need larger hard drives and more space so we can download all of these new things that Microsoft wants us to buy, and at some point we will get them. The question is: “Will Microsoft launch a larger hard drive before my 120GB drive is full?”