I have to disagree, for the following reasons:
- game related installs. I just read that Forza 3, that we already knew would release on two discs, is going to allow you to install some or all content of the second disc to the harddrive (you can actually choose a number of components to install or not), and you'll only need your first disc to access that additional content. Halo ODST is apparently going to do the exact same thing.
- full game installs. As we all know, you can install a game on your HDD now. I installed Fable 2 just last week, and it took 6.6GB. Makes Fable 2 run beautifully and the sound of the 360 bearable.
- full game downloads. As you know the most recent update introduced full game downloads. There's a whole bunch of games you can download, like Mass Effect, Burnout Paradise, Rockstar Table Tennis, etc. I would definitely have bought Table Tennis and maybe Mass Effect, if my HDD had been bigger. But I have a 20GB. I can only just about afford to install one game to the HDD which means if I want to do that with a different game, I'll have to get rid of Fable 2 first, and a downloaded game is even harder to just erase and reinstall all the time.
- Arcade games getting bigger. Shadow Complex for instance is over 800MB. And they are also download games, so tend to stay on your harddrive.
- Demos: download a few demoes, you'll have to delete them again all the time, because they often take 1GB or more.
- Game updates and DLC: games like Burnout Paradise, even if you have a disc version, if they need an update that will often download a fair bit of data to your HDD (up to 800MB)
- Video content you buy or rent online from Live takes space.
And that's assuming you don't use your 360 to store any meaningful quantities of MP3s (to use for the in-game soundtracks), Photos or Videos.
So not only do I think a 120GB drive should definitely be a baseline size, as we're seeing now for both consoles, but there is definitely going to be a need for 250GB and more. There aren't many people now who really need it, but there will be a fair number soon. Heck I think I'll have 250GB on my PS3 by early next year, and I still occasionally delete demos and don't play many games that actually need an install (MGS4 and GTA4 are the only games I have that do an install). Thankfully I have a 320GB HDD, so I should be safe for a while.
Anyway, I'm willing to bet that we'll see both a 250GB Elite (or maybe even a bigger one) and a 250GB add-on HDD drive for existing models.