I still play on my XBOX 360E and prefer it more over my XBOX One DOE and Series X as it doesn't require internet. Just plug it in and play. The One and X require internet just at the setup process and for game to be validated. My 360E has a 20GB internal HDD and it is full. I bought a 1TB WD Blue SSD and installed it into the HDD caddy the 20GB was in and put it the 360 but it will not format or read it. I read online that it can only read up to 500GB with a format of FATx for the internal and can read 2TB for USB external drive.

So I bought an OEM 500GB 360 HDD and it showed error E 68. It says on MS site bad drive. Disk drives are going to start dying due to their age and the spinning disk and there will no way to install an SSD without modding and such and I don't jailbreak or mod my consoles. Will an external 2TB official XBOX seagate drive work as in install the games from disc and patches and play off that drive? Also is the official XBOX 2TB seagae drive SSD or disk?

A quick search brought this up:

"hi, the xbox 360 allows you to connect external hard disks up to 2 TB in size.
This must be formatted in the FAT32 format, if I am not mistaken.
I recently connected a 2TB USB 3.0 from Seagate.
I formatted it with the program FAT32Formatter. (https://filehippo.com/download_fat32formatter/)
Worked without any problems."

And also:

"Keep in mind that while you can use an external hard drive for storage, there are some games that require an official MS Xbox hard drive in order to work.
This applies to a handful of 360 games and all backwards compatible games."

Xbox 360 internal hard drives are special. If you want to upgrade them you have to buy another Xbox 360 hard drive. They top out at about 512gb iirc and are all pretty old at this point. No ssds versions were every released unfortunately.

Good news is that a 360 with recent firmware supports external USB storage. You can just hang a generic iirc 2tb usb hard drive off one of the external ports, format it on your 360, and be good to go. Flash drives also work but aren't very robust.

Oh, I'm not sure if the 360 usb ports can power an external 2.5" usb drive without a usb y-cable. Many retro consoles cannot. I tend to stick to usb enclosures with an external power supply for least fuss.