If you really want to use an external drive (Score 1)

You can format the drive using HFS (Mac file system) and the 360 will read files from it perfectly. I use a program called Mac Drive http://www.mediafour.com/products/macdrive/ to transfer data from my Windows PC to my USB "Mac" hard drive. I then plug the USB HD into my 360 and play media off of there. It's a bit of a pain in the ass but for me it's the best option.