If you read the RAGE preview they say its got a 22GB to install which is already over my hard drive space and I think Skyrim will be just as big if not bigger. So I don't want to waste £150 on a 250GB hard drive and a data transfer cable. And from the reviews I've seen on these cables they say when they connect it to their PC they got Trojans and other viruses.
It's possible to upgrade the HD of an xbox with a normal 2'5" laptop drive you can get for like, $50? I don't know how it works, but you can upgrade the PS3 HD quite easily (you can even put in an SSD for some amazing results, and it's supported by Sony), so i figure it shouldnt be too hard for an Xbox either.
That said, why have you gone for a 20gb model?
Dude don't worry the game is on one disc so it is less then 9GB of data (maximum for Xbox 360) I understand that is a lot for your hard drive. mine is 120GB but 2 Discs would not work, it is not like LA. Noire where as it is a linear game and ME2 is a more Story Driven game so you rarely go back to areas on the 1st disc. In skyrim you would have to swap discs multiple times just to go from Solitude to Riverwood.
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Game is larger than 9GB. There's a limit of 9GB on the disc, but it's mostly compressed data. The xbox will load some data to the hard drive and uncompress it for use if you don't install it, which is why loading times are long and you'll get hiccups during gameplay (loading area like in Oblivion). When you install the game it will likely need 12 or more gb, but it means the xbox doesnt have to constantly copy and decompress data all the time.