That's what I've done, my 250GB HDD is almost filled up but that's okay as it's content I wanted and would have never gotten it in the same quality but rather inferior and compressed (YouTube). Plus, the games/arcades themselves hold media files in them worth preserving too. You know, it's impressive that Microsoft gave so much liberty to its users to let transfer games/demos/videos freely to a USB or HDD without locking to the console itself like Sony did on PS3. And it's pretty easy to extract the files. Already snatched more or less all that I wanted but there's always something else worth grabbing. Don't end up being like me sometimes: "I should have gotten this when I had the chance! "
I think that's more a side effect or deciding they would sell the Core and later the Arcade console with no hard drive to keep the cost down, it would have been hard to keep things user friendly if they force any sort of encryption. An idea at the time might have been not everyone had broadband, so the ability to copy arcade trials on to a memory would be useful to share them with friends. I remember it been a big thing in the early 360 days arcade games had to fit on the 64mb memory card. Either way I do agree it was really nice, what ever the motives were. It allowed sites like Digiex to share an extensive collection of demos and trials for all to enjoy, useful to many people in countries where access to Xbox Live was restricted or not available at all. Your right though demos could have been console locked, only very few ever were. Sadly any sort of content sharing is gone with the Xbox One, everything requires a licence to use it.
It's a shame that with Xbox One they decided to go back to DRM'ing it all, at least with Xbox 360 we got a massive library of content ranging from videos to game content files without too much hassle. I've been organizing the media files of franchises that I'm a fan of, so that whenever I'll want later, I'll just click and watch/listen to it.