SOunds like the concensus is most people feel the need not to have more space. I just feel to use the phones full potental might as well use that space for other stuff. IE SD CARD.
The problem, as I understand it, is that Android uses Unix style permissions for the area where applications are stored. Unfortunately, the SD cards are formatted with FAT32, which has no support for that sort of strict user, group and everyone permissions that are necessary to protect the applications from being modified by other apps while they are running, from being deleted by other apps, etc.
If the SD cards are formatted using a file system that supports Linux/Unix permissions, then perhaps they could be used for application installs. It may be that Android will do something such as create a flexible virtual partition in a file on the SD card to allow something like this, or allow a user to format the SD Card using a different file system, but there are risks there as well. With the first, users or other apps may delete that file accidentally; with the second, users may not be able to mount the card in their desktop OS when they are attached by USB. Maybe there would be a way to partition the SD card into a user-defined space for app storage with the rest for data in a FAT32 partition, but perhaps we'll soon see what Google will do.
I think that the best solution from the beginning would have been to build the phones as the Incredible is, with a big flash internal memory space for storing apps.