I started out with a mod-chip (flat-mod) and had no complaints until the new super mario bros game. Now I am using a Western Digital Mybook 1TB to play games via neogamma (beta 12). I need to fix the 002 error in GX before I can comment on it; however, as for neogamma there are no complaints here.
Got the Mybook cheap at Wal-mart.com over a year ago (in my area, .com prices are always cheaper than in-store). 300 gb is partitioned as wbfs and the rest I use for windows back-ups. I plan to switch soon, though. I intend to use the current Mybook strictly for back up purposes and will use another HDD dedicated to the wii. Just makes sense at this point.
I have seen DOA reports (or "quit working after this many days/weeks/months") all over the internet for almost any brand hard drive regardless of size (GB), format (2.5", 3.5", external, internal), and brand (Seagate, WD, Samsung, etc.). I doubt that the percentage of complaints truly reflects the overall performance of any given brand or model. People are more likely to vent their frustrations online than to seek outlets in order to leave praise. Perhaps I am just lucky; I have never (in twelve years, and always screwing around with stuff) experienced a HDD failure (got an ancient IDE 14GB Samsung that just keeps going, and going, and....), though there are sites and customer reviews that would lead one to believe that such an event is lurking behind every corner.
I advise you to get what you can afford, and to take into consideration what your (realistic) needs are. Do you intend to use FAT32 or WBFS? Keep in mind, WBFS more or less scrubs games for you, and just about every game out there will need much less storage space than 4.3 GB disk/iso size. If going with WBFS, you may want to consider a smaller HDD: 160 GB or 250 GB. Plenty of room for even a larger-than-modest collection, though I am not sure how the file system itself affects the drive's longevity. Hopefully, not at all.
I would also suggest a HDD with its own power source for better overall performance.
I have not used USB sticks for gaming, so I can't offer help on that; otherwise, I hope that I have been helpful.