#1 For additional space with Xbox 4 gb kinect bundle can I use Western Digital external portable hard drive? So that I can store online games which requires more than 4 GB space?
#2 Does adding external hard drive of 240GB with XBox 4GB is different from taking XBox 240GB version?
You can only use 32GB of storage for the Xbox 360 with an external drive. It won't allow anymore. You cannot store games (online or downloading your discs) on it either if I remember correctly. Microsoft really wants you to buy a proprietary hard drive.
You can format a removable drive using the xbox system settings and it will start to recognise it as an MU (Memory Unit). With the new xbox, it is possible to connect a SATA hard drive and use that aswell as the internal storage.