I found flash drives are too limiting. I have a 250GB notebook drive(ie. 2.5") which a take around with me. Doesnt need a powersupply like the 3.5" external HDDs, just plugs into a compy with a mini usb cable.
I read recently that theyve actually just about to release 500gb notebook drives... pretty cool
I use winrar for my compression needs but of course it isnt free