So, Kotaku has a little story about why the Xbox 360 has no default hard drive and the PS3 does. They've got a few spin filled quotes with a bunch of fanboy comments, I thought I'd translate, if only to have an excuse to update.
The Xbox 360 doesn't have a default hard drive because hard drives don't get cheaper over time for the most part, they just get bigger. Normally, that's desirable for hard drives, but not if your making a console to minimize cost. Microsoft looked at the Xbox, realized that maybe four or five games actually used the hard drive in an interesting way (Halo and Halo 2 among them) for something other than a giant memory card, and figured that if they make the hard drive optional that eventually they'll probably be able to get the console down to $150 or less. Realize they were looking at the PS2 at the time.
The PS3, on the other hand, was looking from the point of view of having a Blu-ray drive. This drive, although having huge capacity, is sloooooooooooooooow. They had to have built in storage to let developers compensate for that, or risk having their system be plagued by ultra slow loading times that even their best devs wouldn't be able to circumvent. In some respect, this will hurt them, because they won't ever be able to drop their price to PS2 levels... hard drives won't go down that low. Of course, the blu-ray drive probably won't drop very fast either, so the point is moot - they can't reduce the price anyway, so why not throw a hard drive in?
Anyway, the point? Kotaku should realize that almost no devs used the hard drive in the Xbox. That's a big reason why MS saw it as an expendable, unnecessary luxury that was killing their bottom line. I'm hoping that for the consoles after the PS3/Xbox360, that they both have optional hard drives, but have some kind of large built in storage that is only for caching. Then the optional hard drive can store all the DLC, but everyone can still have their caching.
The trick, as always, is finding something both fast and cheap enough. But whatever the case, it should be enough so that loading screens mid-game are a thing of the past.