Thats part of it, but there is more to it then that I think. There is the physical limitiation, like how the board on the 360 can only do 8MB cache, so getting the higher RPM drives do nothing. On top of that, there is the size limit, I think that is set by the UI. Then there is the DRM the Xbox uses, which can keep you from media sharing and copying some files to your hard drive. Last, there is specail software on the MS HD that some games take advantage of, that isn't on a 3rd party drive (unless you clone a drive, or crack it). All of those things can not only limit you if using a 3rd party, but can raise red flags on their end. A red flag doesn't mean ban though, its more dynamic then that. They probably run sweepers, and then those logs are probably only looked at if they raise bigger flags, and even then there is probably a program they use to filter false negatives.
Bottom line? 3rd party are cheaper, but sometimes they don't work as well, and there can be some risk. For some though, they haven't had any problems. Thats the chance you take.