External HDs confirmed. No word on if you can BYO or need an MS one but recently you can use any USB stick in the 360 so i'm optimistic...
Hard drives in the Xbox One are non-user-serviceable, but Penello confirmed that the USB 3.0 port is there for external storage, which can be used for everything the internal storage can be used for. That includes game installs and downloads. So, don't fret: adding storage will be just as easy as ever.