There is no such thing as too much storage.
True dat.
There will never ever ever be "too much storage" on any portable media device. The point about organization is a very good one, but the iPhone/iPod touch OS does a great job of letting you maneuver through your media.
I did have this problem a bit on my old iPod. I had 15GB of songs, but that click-wheel interface was really designed for about what the iPod nano holds. I always had to go to a playlist or find an entire album to listen to. I have about 5+GB of music on my 8GB iPhone, and it's much easier to find what I want. The bigger display allows more info on the screen, and the variety of easy-to-switch filters (playlists, albums, songs, artists, genres, videos, etc.).
The issue I see a lot of people not really addressing is video. That's where most of the extra storage will be used. At DVD quality, a two-hour movie takes up about 1GB of disk space. I want DVD quality so I can have a decent playback on my computer and not need separate files. As compact processing gets better, HD video will be usable on the iPods and iPhones, allowing all video to be sold in higher-quality formats.
Don't forget about photos. I used to keep some photos on my iPhone to show family and friends. Now, I have ditched them so I can put apps and video on it.
So there is no such thing as too much space. I just hope a 64GB iPhone will get here darn quickly so I can justify an upgrade.