I have the Note 10.1, and just picked up the Tab 2 7.0 the other day since it was $200.
No worries at all about that 4GB available memory -- just get a 32-gig microSD card for about $25, and you'll have plenty of memory to fill up with videos, MP3 files, pictures, and whatever else you want to have along with you.
One thing to keep in mind is price -- you're going to pay a whole lot more for that bigger screen. Though, some of the extra you might pay will be for "extra memory" beyond the 8GB that the Tab 2 7.0 has, but if you stick with Samsung, it's the same story -- you don't need to spend a couple hundred more for more memory -- just pop a 32-gig microSD card, which will once again be about $25.
As for reading and such, I suppose the 7-inch screen is fine for e-reading, and it's actually just fine for watching videos and such. And it's a whole lot smaller and lighter than a 10-incher.
To me, where the 7-incher really falls flat is web browsing -- I swear, it's not a whole lot better than surfing on your phone. That's where the bigger screen really shines -- browsing the web.
If I could only have one, I'd have the big screen -- it's just all in all more useful. But, if you're going to be carrying the thing around with you everywhere you go, then perhaps you'd prefer the smaller size and weight of the smaller tablet.