As far as I know, you can use any USB mass storage device. I have a friend who has his Forza save data, Xbox Live gamertag, and all the Forza DLC and updates on a flash drive so he can plug and play on any Xbox.
If I recall, they only released 10 DLC for Forza 3 aswell. The only thing that is bothering me is that they didn't release any new tracks for FM4. But maybe they will push out one more DLC with tracks.