So... You've decided to buy the 120GB HDD for your Xbox 360. Now you have an old hard drive that you're probably not going to use anymore, as well as a useless cable. You could sell it or give it away... or put it to good use.
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Step 1: Materials
You will need:
-An unused Xbox 360 hard drive
-The Hard Drive Transfer Kit cable that came with the 120GB hard drive
-A disk format utility for your pc (this tutorial will use Windows Disk Management)
Step 2: Plugging in the Hard Drive
Attach your unused hard drive to the transfer kit. Plug the USB Cable into your computer and let it install the drivers. It should be pretty much automatic.
Step 3: Formatting the Hard Drive
Open Windows' Disk Management (Start>Right-Click My Computer>Click "Manage">Click Disk Management on the left side of the window). A pop-up should appear to tell you that you need to initialize the disk. Select MBR it it isn't selected and click OK.
Scroll down to the large black "Unallocated" block. (Make sure that it's your Xbox 360 HDD; its size should closely match your hard drive's size.) Right-click that block, and select "New Simple Volume".
Keep clicking Next until you reach the screen titled "Format Partition". You can keep the file system as NTFS, but I would recommend changing it to FAT32. You can also change the Volume Label if you want.
Click Next, then Finish. The drive will format.
Step 4: You're (almost) Done!
Well, that's it. You can now load up your hard drive with your own files, music, documents, backups, etc. You can even install Portable Apps or a full operating system on your new hard drive. Go crazy and have fun.
(Additional notes: Unfortunately, the hard drive won't be recognized by the Xbox 360. However, it will be recognized on a PS3.)