Hard drive's seems to be the best choice. One, it's very reliable. Two, you can transfer data between one hard drive, to another.
I think Nintendo should go for the hard drive this time around, if they use an SD card, I will be highly upset.
I think they should make two models, in both $300 and $350 form. (Or $350 and $400 form, whichever.)
The $300 form will have no Hard Drive (however, you can purchase one at a later time if you should want to) and will use external memory to save.
The $350 form will have a Hard Drive (The amount of gigs is TBD) and can also use external memory to save, and you can transfer data from the Hard Drive to the external memory card.
Just my two cents on it anyway.
The reason that Nintendo isn't using an internal hard drive is that they simply aren't reliable enough as well as the extra costs that an internal hard drive adds to a system. Hard drives add more moving parts than Nintendo is comfortable with increasing the likely hood that something breaks. This is primarily why Nintendo likes solid state memory. You will never see a Nintendo console with an internal hard drive. The wide variety of options open currently from SD cards to external hard drives is more than enough storage. For the average consumer 8GBs is more than enough for those who need more at least there will be options to supply that.