is the 360 4gb hard drive enough to install shivering isles?

Yes. And KOTN as well. Provided you have enough space left after all the crap Microsoft puts in there. Which I delete. You will be pleasantly surprised at how fast and quiet your game runs.

how do you delete the stuff MS puts there and what is it? obviously not neccesary for system function I take it.

Have you looked at the size of some of the demos? The previews of some movies? Instant 500 MB of space.