Apparently does require a hard drive for play
The hard drive-less $199 low-end Xbox 360 apparently does not work with the online co-op mode of the just released Halo: Reach. According to the error message that appears, a hard drive is required to play Reach in co-op mode and the 4GB of onboard flash memory or a 16GB USB flash drive will not do the trick.
Microsoft has confirmed that this is the case in a posting in the Xbox Reach forums; and beyond saying that a hard drive is required, they actually don’t indicate why this is the case. Of course, those that opted for the low-end Xbox 360 consoles without the hard drive can add a hard drive to solve the problem, but the hard drives for the new consoles are not cheap, and if you opt to purchase the 250GB model for your $199 Xbox 360, you end up paying $30 more than you would have if you would have purchased the $299 console from the start with a hard drive included.
Those without a hard drive are able to play the versus game mode online, but not the other online co-op modes. Beyond the surprise of the co-op mode not being playable without a hard drive, there are a number of reports of defective discs that are also making the rounds. According to several sources, these discs are new and fresh from the factory and just don’t seem to work. It is reported to us that in some cases they will not work on one console, but will work on another, yet in some cases they just don’t work at all.
Microsoft and Bungie are said to be looking into the defective disc issue, but no word as of yet if they are going to do something to address the co-op play without a hard drive. We suspect, however, that it is very likely that a fix will be coming for the co-op online play without a hard drive issue, if possible, soon.