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Kyte, it is an issue for my 16 GB iPad.
If you only have one GB free then a large app, such as 1.3 GB Baldur's Gate will not update. So that means I have to stay at 13 GB or less. I have more than half of that in music alone (and that is a fraction of my music library). A full length movie is 2 or 3 GB. I'm thinking 64 GB is the sweet spot for me but I don't want to pony up that much money.
Using the cloud is all fine and dandy if I'm at home. But go travel somewhere that lacks wifi (or where it is expensive, Europe I'm looking at you! or slow) and you need to bring it all with you.
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