Other than compressing audio, textures, and using in game cutscenes instead of FMV I'm not sure there are too many good ways to get around DVD storage limitations. The only one that comes to mind would be maybe give up the 1080p pissing contest with Sony and limit games to 720p with 1080p being upscaled. I'm not sure how much space that would actually save but I am sure someone on this site would be more familiar with any benefits, or not, that would have.
I'm not an expert on laws and regulations in various countries but I think the EU requires games sold in the EU to have all those languages so other than cutting out parts of a game for Europe (as Sony and Nintendo have in the past) I don't think that's going to help much.
The problems with using the hard drive are that not everyone has one, even those that do wouldn't have enough space for that many games (eg, 5GB a game would wipe out a 60GB HDD in no time), and it would cause confusion for many gamers with one disk being a load disk and one being a play disk and perhaps 2 more disk being swap disks for Core owners and so forth.
Although this debate does just show again that Sony and MS jumped too far ahead in console technology. MS tried to do it on the cheap but if you don't go all out on every part of the console then the part you kept cheap will be a weak link limiting the rest (sort of the N64 and Nintendo cutting back the RAM to make it cheaper). On the other hand Sony has discovered that if you do go all out on everything your console is so expensive that few can afford to buy it or make games for it (3DO would be a more extreme example of that). And some silly people blame Nintendo for not sollowing suit.
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