Here's the pre-install prep I did last night, just in case:
1. Formatted a 16Gb Sandisk Blade on the Xbox to use as the game install target
2. Cleared the Xbox System Cache
Installing the game to USB Drive leaves the HDD to do the necessary cache work.... that's the theory anyway

There is a great article http://www.eurogamer.net/articles/xbox-360-storage-update-the-flash-factor-article which compares differing USB devices and includes a comparison using Halo 3 - which came with instructions from Bungie NOT to install to the HDD as it caused performance issues!
Edit: Here's a quote from the article I linked above:
Bungie's sophisticated caching system made heavy use of the hidden partition on the Xbox 360 hard drive. Installing to that same drive caused a whole bunch of unnecessary HDD to HDD transfers resulting in significant performance drops. With the inclusion of the USB devices, these multiple transfers still occur, but the data isn't being streamed to and from the same drive any more.
The test results for Halo 3 level loading times went like this:
USB was faster than DVD which was faster than HDD...