I agree about the bigger sizes - as soon as you start talking about video, the space goes quickly. I would probably have my audio downsampled (transcoded?) from the WMA Lossless that it is on my PC to 192 kbps or so - that should save quite a bit of space over the 35 GB or so that my music takes up on my PC.
Video......I'm obviously not a purist, since I tend to use PocketDvixEncoder to convert ripped VOB's to a nice small 320x240 video that runs nicely on my PPC. Default bitrate is 248kbps, although I often take it up over 300 kbps, and take the audio up to 16 bit stereo (80 kbps) minimum - I'm still looking for the sweet spot between image quality and file size.
Most of my full length DVD's run to about 250MB; I'd transcode them at a higher quality level, although I only have a 512MB card yet, so need to keep them small. If I had a player like this (or the 2 GB SD card that I've been eyeing...), then I would definitely be encoding at a higher bitrate.
Either way, you may only be able to play 4 GB or so with one charge, but if I'm on the road for a couple of weeks, I definitely want to have lots of content. Funny how watching a video on my PPC screen at 320x240 is more attractive than finding something on TV - tells you about my opinion of the state of TV today!