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You can upgrade the THD just like any other box (except it uses SATA drives like the S3 so you'll need a PC with a SATA connection or some sort of IDE->SATA converter). Check out this thread:
http://www.tivocommunity.com/tivo-vb/showthread.php?t=360676
http://www.tivocommunity.com/tivo-vb/showthread.php?t=360676