It was less than a year ago that I bought a 256MB thumb drive and thought “man, lots of space, that’ll be handy”. In fact, I added my keys and made it my keychain. Then I decided it was too small and upgraded to a Lexar “Jump Drive” with an impressive 512MB of space coupled with some encryption software that would ensure that if I lost the drive, I wouldn’t be out of luck.
Problem is, unless you have incredible personal discipline, it becomes quickly obvious that it’s useful to have more space, not less, and just like modern housebuying, while it’s impossible to have too much space, it certainly is possible to have too little.