Im talking eMac sans monitor... thats not that much bigger than the mini, especially when you are still using a slot load laptop Optical drive instead of the massive 5.25 standard optical on the eMac.
As far as not saving money on the 7200 3.5 40GB, doing ONE search i found a 40GB for $43. Doing a similar search for "40GB 2.5 4200" got me a hard drive for $68.95. I bet Apple's prices would be slightly better because of bulk pricing. There is nothing BTO about it to make a 3.5 drive standard either.
The decision by apple to make the mini ridiculously small is because they wanted to impress people with the size, no matter what the underlining technology is behind the machine. It is not because of anything to do with Microelectronics... look at the micro-atx cases around that have 3.5s in them AND a power supply.. this is not a difficult feat in the least to make this puppy a few inches taller, and wider keep the PSU external still and give the thing a real performance jolt.