the reason that it says 16 on the memory stick and 14 on the concole is because 16 is the total memory put on the stick, and 14 is the total memory available to you after formatting. As to your other problem, I'm not sure why it wont let you (watch movies, was it?). If it's on a dvd it shouldn't matter. If it's on a usb make sure that it is like .avi - those are the ones that i know for sure work. Also, you need an update off of xbl marketplace to watch movies from a usb. If it's right off of Live, than i honestly don't know why it isn't working. And if it's not movies you were talking about, than i need to stop using my phone to go on the internet. And i'd also be even more puzzled. Maybe use some christmas money to buy a harddrive?
With the 360 slim versions you cannot buy another hard drive for them as they are not compatible with the original 360's hard drive. What I would suggest doing is buying a memory card that is actually made for the 360. They are pretty inexpensive and will for sure work with the 360. The ones I have found though don't have alot of memory. But it is something to think about.
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