[citation][nom]steelcity1981[/nom]i'm really surprised that Microsoft just didn't include a 20gb hard drive for their base model slim. Then again, it's Microsoft we are talking about.[/citation]
It costs a basic amount to make a brand new hard drive in the first place, since MS wants to have a proper supply chain, they need a drive that is new, being still made, and that they can still get for a good while.
20gb drives haven't been made in ages. You might see ads for them online for cheap, but they'd have to buy new ones. The smallest might be around 80-160gb so you might average a cost ~$40 more. They used to be selling the consoles at a loss, $40 more is a bit harder to justify.