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I've never heard of any kind of dedicated space for collections on any model of Kindle?
It is true that anything with a hard drive only has so much of the space available for the user (system files like the software that runs the Kindle needs it's own space), so for example the Kindle 3 and the Kindle Touch have 4GB in total, but only 3GB is available to use, whereas the Kindle NT is smaller it has 2GB in total, and about 1.25GB available.
Collections are just tags anyway, so they don't really take up much room. What might slow the Kindle down is if you have hundreds of books in each of those collections. They may advertise they can a few thousand books, but they do tend to slow down if you have a lot stored on your Kindle.
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