Even if they use H.264 or VC-1, 720p video, you need atleast 12mbps for a decent HD encode, and in practice judging by bitrates on released HD-DVD titles, you need about 15-18mbps given immaturity of codecs. 1 hr @ 12mbps = 5.4gb, or 6.7gb @ 15mbps avg. That means even 15 mins of HD FMV is going to eat up about 1.3-1.6gigs. Most titles probably won't have that much FMV, but Final Fantasy will have a shit load, and Lost Odyssey appears to have tons as well.
Of course, you can always cut down on quality to use less space, just like you can trim polygon budgets to fit max sustained performance, and cut texture quality due to limited texture ram, and cut resolution or blended depth complexity if one runs into bandwidth limits. The art of game programming is trimming game content to fit within many constraints while minimizing quality loss, and disc space is one of those constraints. Personally, I'd rather have the space for the future.
This argument would be completely moot if the XB360 had shipped with HD-DVD. There would be less argument over DL 30gb vs DL 50gb. It is only really because of the lack of parity in this one feature, that people are so adamant about downtalking storage capacity.
Historically, people have always seemed to find uses to utilize the extra space. There was a time when people seriously questioned the need for >32bit addressing, >32bit filesize, I mean, who the hell would have a 4+gigabyte file!? When 16mb of RAM was the standard, 1GB of system RAM seemed crazy. I used to run tons of apps on my 16mb SYSV Unix system without hassle.
We had the same debate in the PS1/N64 era, and then again in the PS2 era. Oh, PS1 games wouldn't possibly use all of the CD storage. After all, the N64 had better gfx and it only needed 64MB. But FF7 came along and the cartridge was no longer adequate. When the PS2 got a DVD drive, the same rumblings appeared. The largest PS1 games had spanned ~4 CDs, how would anyone fill up a DVD? Many PS2 titles continued to ship on CDs, thus proving you don't need DVDs really, as you could always ship 2 CDs. Then 4gig, 9gig DVD titles came and finally multi-DVD titles hit, which would require a shitload of CDs for the user to juggle.
I don't doubt that for probably the first year, most PS3 titles won't need the space. Then developers will start figuring out how to use the space. FFXIII probably won't even fit on a BD25 given Square's penchant for uber FMV, and who knows what the insane creator of Xenosaga will come up with. Probably a game so long and with so many cut scenes, the PS4 will be out before you can finish it.
DVD-9 represents enough storage to fill all RAM in the XBOX360/PS3 17 times over. Even allowing for compression that's not a big ratio. (especially since some data like textures and perhaps sound, needn't be decompressed on load) A game with 40 levels of unique textures and architecture would probably bump up against it easily without careful budgeting and reuse.