Hi there Brian. The 256 MB of ROM is where the whole OS is stored - no Pocket PC on the market ever has all of the ROM available for user storage...so what you're seeing is perfectly normal. Ideally HP would explain this somewhere (like "256 MB ROM, 187 MB User Accessible") but this isn't unusual.
If you check out my video review of the iPAQ 100 that I just posted on the front page, it took has 256 MB of ROM and 195 MB is what's free for the user.
So basically, I wouldn't let this bother you because Flash memory is ridiculously cheap. ;-)