Piracy isn't the motivation, but when you consider the fact that Microsoft doesn't get a cut from the sale of third-party products its quite obvious why they would do this. Other than its nice to know that both Sony and Nintendo have an open policy which in turn is good for the consumer.

I think it's a scandalous move simply to monopolise the market. I have 2 x 360s and I use a Datel memory card to swap my profile and game saves between them. I would consider myself a hardcore 360 gamer, a frequent customer who owns all three consoles but I buy games almost exclusively on 360 out of preference. MS are punishing me now for simply choosing an alternate memory unit? Outraged. They get almost all my cash and now they want more. Pure greed.

Just a third opinion: It may not be due to greed or piracy, but simply stability and optimizations. For that matter, it is extremely unlikely for this to deter piracy in the slightest, considering that piracy would've been underground to start off with.

And on that note, there MUST be some hardware differences between third party devices and official ones, if third party devices can be successfully locked out to start off with.

Is Microsoft going to refund people who bought those cards when they worked just fine? Because if not, what they're doing essentially amounts to theft. I don't own any 3rd party accessories for my 360, but it's my console, not Microsoft's, and they have absolutely zero right to tell me what I can or can not plug into it. If they want to block people from their network, their online games, etc., then that's their call to make, but to literally render another person's perfectly legal purchase inoperable is (or certainly should be) criminal. After the anti-trust lawsuits they've had to deal with in both the U.S. and Europe, you'd really think that Microsoft would know better by now.

@Adam Bishop

Technically though Microsoft doesn't force you to update so that argument doesn't hold water. Not being able to use Microsoft services or play newer games is a different matter entirely.

But will they not demand that you install the update if you want to use Live? If so, that means that they are not forcing you, but it doesn't give you much choice.

Is Microsoft going to put a big warning ahead of the install that says "WARNING: This update will break your hardware"? I doubt it, since their updates never tell you what they're doing. It's not like everyone who has a 360 sits around reading Kotaku or Gamasutra all the time to know about this. Lots of people are going to have their hardware broken by Microsoft in an irreversible way (since you can't uninstall a firmware update, as far as I know) without having any idea what's going on.

I for one applaud this move by Microsoft. It's unfortunate that modders and hackers have used these devices for mods to multiplayer gaming ( no clip mod cod4 anyone ?). So any move to rid these hackable devices from the 360 is a great start. For the week or two of mod free gaming (fingers crossed) until a hacker finds a way around it and it all starts up again. Yes is it also a purely a profit based move on behalf of Microsoft? Of course it is but sometimes it has benefits to gamers as well as the bottom line.

It's a bad move. If they didn't want third party Memory Cards to be used that lock out capability should have been in place on day one. To me that is the issue plain and simple. Don't wait until years later after we all have gone to the expense and trouble to buy and utilize third party memory cards.

Clearly, it hasn't bothered MS that much or we would have seen this update long ago.

The truth is that MS has long been angling to cash in on our need for memory and storage. But they haven't done it very well. They have have been stingy with it by only offering limited products for these purposes that are ridiculously expensive. They actually have been driving us towards the third party solutions. And now punish us for doing it?

What happened was that MS sat down in a meeting with their software engineer and accountant and said: "How can we wring some more money out of this thing? Hey how about if we finally get around to bricking everybody's third party memory cards? That way we will force them to buy ones we get paid for. It will be a nice chunk of change and help offset that pesky red rings of death charge. And we can claim it has to do with piracy in order to cover up the fact that we will profit handsomely!"

And while this conversation went on, an insignificant hardware manager said, "But this is really going to hurt those loyal customers who we have let use these third party memory cards for years, worse we will brick a lot of people's game saves..."

Vice President, with a bubble above his head that reads: "end of quarter bonus check," immediately responded: "F-em, you're fired."

@Adam Bishop

a) No hardware is broken. Mocrosoft is not responsible for the hardware of others.
b) They do have a clause regarding such for their XBox Live service.

http://www.xbox.com/en-GB/live/legal/xboxComTOU.htm
16. Service Operation and Equipment.

The Service may only be accessed with an original Xbox, an Xbox 360 console, a personal computer, or other device authorized by us,or by logging into your account via Xbox.com. You agree that you are using only authorized software and hardware to access the Service, that your software and hardware have not been modified in any unauthorized way (e.g., through unauthorized repairs, unauthorized upgrades, or unauthorized downloads), and that we have the right to send data, applications or other content to any software or hardware that you are using to access the Service for the express purpose of detecting an unauthorized modification. Any attempt to disassemble, decompile, create derivative works of, reverse engineer, modify, further sublicense, distribute, or use for other purposes the Service, any game, application, or other content available or accessible through the Service, or any hardware or software associated with the Service or with an original Xbox or Xbox 360 console is strictly prohibited and may result in cancellation of your account and/or your ability to access the Service, and the pursuit of other legal remedies by Microsoft. Microsoft may take any legal action it deems appropriate against users who violate Microsoft's systems or network security,this contract or any additional terms incorporated or referenced in this contract, and such users may also incur criminal or civil liability.

Microsoft reserves complete and sole discretion with respect to the operation of the Service. Microsoft may, among other things: (a) restrict or limit access to the Service; (b) retrieve information from the original Xbox, Xbox 360 console, personal computer, and any connected peripheral device used to log onto the Service as necessary to operate and protect the security of the Service, and to enforce this contract; and (c) upgrade, modify, withdraw, suspend, or discontinue any functionality or feature of the Service, any game or other content available or accessible through the Service, or any hardware or software associated with the Service or with an original Xbox or Xbox 360 console, or personal computer, from time to time without notice, which may involve the automatic download of related software directly to your original Xbox, Xbox 360 console, or personal computer, including software that prevents you from accessing the Service, playing pirated games, or using unauthorized hardware peripheral devices.

Basically, don't use XBox Live service if you do not want your hardware/software to be modified or do not want to be unable to use unauthorized hqrdware.

I'm just going to mention that this update might also be to prevent people from building their own hard drives to avoid paying the high retail price.