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I'd never need all of that, or even half of that, so for me the 4GB seems reasonable for the average person.
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4GB is pretty tiny for a consumer device aimed at music/video lovers.
Compare it to the competition - the iPhone currently has 16GB and the N95 comes in 8GB and expandable variants. The imminent N96 has 16GB
and a microHCSD slot (that's potentially 48GB of memory!). I'm sure the 3G iPhone will be released with 32GB.