I listen to a lot of audiobooks and have never considered putting them on my Kindle; an mp3 player makes a lot more sense. MP3 players are a lot smaller, are lighter, and can be a lot cheaper. If you add a cover to a Kindle, it's no longer pocketable; even "naked" it's just barely pocketable.
For books, 4GB is plenty, and 3,500 books seems quite plausible, as most kindle books are easily under 1MB. Just looking through Amazon's site - the new John Grisham is 432pp./576KB; the new James Patterson is 384pp./397KB; the Girl with the Dragon Tattoo is 480pp/867KB.
If you are interested in books with a lot of pictures, however, this will likely not hold true.
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