I guess for most people, 4GB of storage is enough. I also assume having only internal storage reduces power usage, so they can put in a smaller battery, keeping the Diamond thin and light. However, it would be great to get rid of my mp3 player (32GB Creative Zen, with a 16GB SD card). If the Diamond came with an SD slot and a real headphone jack, I would probably get it, even without a keyboard (I have an AT&T 8525). In my car, I have a powered cradle for the 8525. If the phone is in the cradle, I can't even attach the headphone adapter.
It would be the same for the Diamond. I have a separate cradle for the Zen and patch it into the auxilliary input on the car stereo.
I think I'll wait for the Xperia X1. It has a headphone jack and a keyboard. I think microSDHC tops out at 8GB now, but who knows how big they will get? Seeing how this has worked in the past, they'll probably come out with a 32GB card, but the Xperia won't be capable of supporting it.