So I just got a 16gb Flash Drive I reformatted it, threw all my downloaded Xbox Live Arcade games on it to save some room on the very small 20gb hdd, then decided to download a demo of a game onto the Flash Drive just to notice that it got stuck on 99% and would not finish!!!  I decided to delete the download just to notice that a ton of the download Xbox Live Arcade games where missing!!!  Right now I have to download a bunch of games again and now I'm thinking I might lose the actual save files inside those games....   
 
So I guess what I can say is if you decide to buy a 16gb Flash Drive don't to it!!!

Sounds like you were in a rush. I'm scared of cancelling in the middle of writing operations, you never know what you're gonna screw up. What brand of flash drive are you using anyway? According to RoosterTeeth, the PNY 16 gig is supposed to be a pretty good choice. They were less happy about the Sandisk ones.

I've found the addition of USB Flash memory a Godsend. I bought two 16 gb USBs, one I used to store the numerous DLC for  Gears2, World at War, Fallout 3, Oblivion, Dragon Age, Mass Effect 2 that would previously be a pain to find room for on my 20gb HD. On the second 16 gb usb I install 2-3 games to save wear and tear on my 360's internal componants. 
 I bought Scandisk and Duracell branded USB's and have had no problems with either...allthough I think I was able to free slightly more space on the Duracell brand one

I bought two of them since by meager launch drive of 20 gb just didn't have the room to install a disc-based game.  Since my 360 is a launch unit, it's on borrowed time, making me hesitant to play any games on it - especially one like Deadly Premonition that will be spinning a disc for hours.  I don't play many 360 games, since I'm not a gold subscriber I went to PS3 for online, making the idea of the 250 gb drive too expensive given how little I play.  While it was $70 for the two 16 gb drives, I can use those after I stop needing the storage for the 360 for other things, something not possible with the 360 HDD, making it a smarter investment.
 
I installed Deadly Premonition and Dead Space to the USB drive, they work fine, and my 360 is nice and quiet without that turbine of a DVD drive spinning.

It really depends on the type of USB device you're using, many Flash drives are very slow and unsuitable to be used like this, especially if it was a cheaper one you bought.
The stick that came with the Forza 3 LE is perfect for storing data, as it's very fast.  Unfortunately it's only 2gb.
 
I'd advice just checking reviews before buying one, and preferably look for advice on the 360 forums.

My 16gig Sandisk i had works just fine for what i use it for...i have my profile, save games and Rockband songs on it. everything else goes to the hard drive.

you must of fucked up, i managed to comfortably put all my save data and most of my dlc on my phone to move it over onto my larger HDD without any problems what so ever

Don't you mean if you decide to buy a 16GB Flash Drive for the 360?

I bought the 16g PNY and it doesn't work with my 360, despite reviews saying it would. I am raging. Raging.

 For a bit of good news I re downloaded Splosion man and tried it out and found that my saved game didn't get delted some how.  I don't know if the save is somehow part of your profile like the achievements but so far I was able to find that I might not lose saved games from Xbox live arcade. "