The internal flash storage is 128MB, and I have plugged a 1GB RS-MMC card into mine. This gives me a 128MB JFFS2 partition and a 1GB FAT /media/mmc1 partition. I can store documents on the memory card, but I can’t install applications there.
There is a third-party tool that allows you to mount the RS-MMC as a unionfs filesystem on top of the internal flash. I would suggest that this should be standard; install the standard software on the internal flash and then mount the RS-MMC on top and put all the user files and applications on it by default.
The problem with this is that the standard way of moving files between the device and a bigger computer is currently to plug it in via USB and allow the host computer block-level access to the flash card. This is a hack because it means you can’t have the flash card mounted while the machine is plugged in using USB, and it also means that you need to use a filesystem on the flash card that all host computers can read.
To fix the problem of FAT on the flash card, Nokia first needs to provide a better method of file transfer. I would suggest that SFTP and Bluetooth File Transfer servers would be the obvious options here, especially since they already exist as third-party add-ons. Integrating them into the base system wouldn’t be too difficult; all it would really take would be a button in the task bar to turn them on and off. It could even be integrated into a connection menu.