  Using analytic arguments and a suite of very high resolution (10^3 Msun per
particle) cosmological hydro-dynamical simulations, we argue that high
redshift, z ~ 10, M ~ 10^8 Msun halos, form the smallest `baryonic building
block' (BBB) for galaxy formation. These halos are just massive enough to
efficiently form stars through atomic line cooling and to hold onto their gas
in the presence of supernovae winds and reionisation. These combined effects,
in particular that of the supernovae feedback, create a sharp transition: over
the mass range 3-10x10^7 Msun, the BBBs drop two orders ofmagnitude in stellar
mass. Below ~2x10^7 Msun, galaxies will be dark with almost no stars and no
gas. Above this scale is the smallest unit of galaxy formation: the BBB.
  A small fraction (~100) of these gas rich BBBs fall in to a galaxy the size
of the Milky Way. Ten percent of these survive to become the observed LG dwarf
galaxies at the present epoch. Those in-falling halos on benign orbits which
keep them far away from the Milky Way or Andromeda manage to retain their gas
and slowly form stars - these become the smallest dwarf irregular galax ies;
those on more severe orbits lose their gas faster than they can form stars and
become the dwarf spheroidals. The remaining 90% of the BBBs will be accreted.
We show that this gives a metallicity and total stellar mass consistent with
the Milky Way old stellar halo (abridged).
