I'm confused. There's storage and then there's memory. Which are you two referring to?
Think of memory (RAM) as a table and storage as a filing cabinet. Now you can store documents and music in this virtual filing cabinet, up to 8GB in this case. The table is where you put the files to use, RAM. You can't read a file that is sitting in a filing cabinet. You got to pull it out and put it on the table. The table, in this case, can only hold 512MB. Here is where it can get tricky, why don't you just save apps in the filing cabinet. Right now, you can't and it has more to do with the OS and Google. I'm sure a real techy guy can give better detail than what I am doing. I just wanted to give you a high level explanation between memory and storage.
Rumor is that Google is working on the ability to save apps in storage rather than memory, like a traditional PC would. Has to do with encryption and other things. As of now, apps are saved in memory. Again this is high level.. hope it helps.
Just to be clear: memory is 512MB and storage is 8GB.. give or take.