I followed these instructions (http://wiki.atvflash.com/index.php?title=USB_Storage#Option_2:_USB_as_Primary_Storage) to set up my external USB drive as the primary storage. All seemed to work, it said it was formatting etc, but when rebooted the storage space was still the storage space of the internal drive (both from viewing in iTunes and from Settings > General > About).
From the Maintenance menu it still says the storage is External. If I go back to Internal it reboots and comes back fine, everything works identically. When I switch to External again it asks me if I want to change, I say Yes, it reboots and comes back and same thing - it thinks it is using External, but the storage space is exactly the same as it was with internal (30 GB).