120GB SSD

Nope, the limit is there pretty much because a 120GB hard drive is so small that it will only fit one or two games and then its full. With games like Gears of War 4 and Halo 5, you may not even fit one game on the drive, and with the Xbox One X coming out,
they certainly wont.

Also the faster loading times from an SSD aren't that amazing when compared to a hybrid drive (which are considerably cheaper and offer larger storage capacity)

http://www.eurogamer.net/articles/digitalfoundry-2016-should-you-upgrade-your-xbox-one-with-an-ssd

Windows 10 doesn't shutdown when you tell it to shutdown, it actually goes into a low power state, very similar in manner to the Instant On used by the Xbox One. This is why your custom desktop is booting in 5 seconds. Fully shutdown your desktop by disconnecting
it from the mains and pressing the power button a few time (to discharge the capacitors) and reconnect the mains power and turn it on. I can guarantee that the bootup time is now going to be longer than 5 seconds, just from your graphics card and system bios
kicking in.

Put your laptop to hibernate and you'll see that 2 to 4 minutes bootup time cut drastically, as the 'state' of the PC is being held in memory, just like Windows 10 is doing when it is turned 'off'.

SSDs certainly do speed up the boot time of a PC but in your case it's the OS, not the SSD, that is responsible for the boot time.

5 seconds is the time it takes to boot up my desktop pc when I've turned it off at the wall. When you hit shutdown, it shuts down your system on windows 10 pc version unless you've tweaked the system. An HDD averages 1-2 mins to boot up where as an SSD can
do it in seconds on average only taking 10 seconds to cold boot up. Now that's a big time difference. ADD to that windows 10 updates are radically completed faster than on my laptop. (Download, verification, install - the last two take the longest. Xbox one's
example is a joke. Download is fast but verification and install take at least 4x longer).

I find it more likely that the limit is at 256gb to stop people using their own external drives and instead push the official Seagate ones

https://www.amazon.com/Seagate-Game-Drive-Green-STEA2000403/dp/B01065S79E/.

You know the ones that thanks to the official status from Microsoft are $20 more expensive than the same capacity drives from the same company (in this case Seagate).

So what if someone can only fit one or two games on their external drive, shouldn't they be allowed to do so?

With an SSD, boot times and shutdown times, would be so much more quicker! 120GB would be enough for the Xbox One operating system. But you can only store a very few games on a 120GB storage device, keeping in mind, you don't get the quoted full storage
space from a device. Some of it is reserved for the system. But yes, SSD's are way and noticeably and obviously faster at loading, saving, booting, and shutting down, than HDD's, and they have no moving parts and can be more compact, too. My custom desktop
has a 1TB Samsung Evo SSD which can boot my PC in 5 seconds. Where as the 5400RPM HDD on my HP 15' laptop takes 2-4 minutes to boot up and for all the programs on the drive and desktop, to have loaded. This is the restriction with HDD technology, it's old.
Time to make way for the new.

Windows 10 doesn't shutdown when you tell it to shutdown, it actually goes into a low power state, very similar in manner to the Instant On used by the Xbox One. This is why your custom desktop is booting in 5 seconds. Fully shutdown your desktop by disconnecting
it from the mains and pressing the power button a few time (to discharge the capacitors) and reconnect the mains power and turn it on. I can guarantee that the bootup time is now going to be longer than 5 seconds, just from your graphics card and system bios
kicking in.

Put your laptop to hibernate and you'll see that 2 to 4 minutes bootup time cut drastically, as the 'state' of the PC is being held in memory, just like Windows 10 is doing when it is turned 'off'.

SSDs certainly do speed up the boot time of a PC but in your case it's the OS, not the SSD, that is responsible for the boot time.

With an SSD, boot times and shutdown times, would be so much more quicker! 120GB would be enough for the Xbox One operating system. But you can only store a very few games on a 120GB storage device, keeping in mind, you don't get the quoted full storage
space from a device. Some of it is reserved for the system. But yes, SSD's are way and noticeably and obviously faster at loading, saving, booting, and shutting down, than HDD's, and they have no moving parts and can be more compact, too. My custom desktop
has a 1TB Samsung Evo SSD which can boot my PC in 5 seconds. Where as the 5400RPM HDD on my HP 15' laptop takes 2-4 minutes to boot up and for all the programs on the drive and desktop, to have loaded. This is the restriction with HDD technology, it's old.
Time to make way for the new.