What's on them? They made a business decision that has proven to be the right one. If anything, it's not on them, but on the users, because the lack of standard hdd has been holding back the 360. I don't see how this is going to hurt Microsoft in any way. Very few people who are planning on buying Halo 4 will not do it because of this. Besides, that would hardly matter this late into the generation.
I presume that would depend on the flash drive's speed. If you have a decent one, transfer speeds shouldn't be lower:
http://www.examiner.com/article/a-look-at-xbox-360-performance-with-a-usb-flash-drive