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512 MB is amazingly small for anything other than cartridge based videogames, but I also don't think Nintendo should move towards a hard-drive. Ultimately, 8GB of flash memory is really not that expensive anymore and by this time next year Nintendo should be able to sell a Wii with 16GB of flash.

Personally, I think a hard-drive is a bad choice for something that wants to be an inexpensive gaming system because hard-drives are expensive and don't see much in the way of price reductions, tend to be slow and have a high failure rate (compared to memory). For Sony/Microsoft it makes sense because of the non-gaming fuctions but will eventually limit how inexpensive these systems can become.