Okay, some totally OTT blurb first, "The Xbox 360 USB Flash Drive by SanDisk delivers the best experience on the Xbox 360 console. Pre-configured for seamless plug and play action, the drive eliminates the need to format storage or download an initial software update for an Xbox 360 console. For gamers looking to get in on the fun or for those with existing accounts who want to extend their play, a one-month Xbox LIVE Gold membership is included with purchase of the drive."Basically, SanDisk is selling officially badged storage for the Xbox 360.
Shuki Nir, Senior Vice President and General Manager, Retail at SanDisk says, "The Xbox 360 USB Flash Drive by SanDisk is specifically engineered to deliver a great user experience and maximum compatibility with the console, offering gamers greater freedom and flexibility in how they store, manage and enjoy their favourite files."
And yes, Microsoft does support it.
Details: "The Xbox 360 USB Flash Drive by SanDisk is available now on SanDisk.com and at major retailers. The drive is available in 8 gigabyte (GB)1 and 16GB capacities, carrying suggested retail prices of $34.99 and $69.99, respectively."
Source.