"It also doesn’t factor in peoples’ CD collections, photos, or videos they might want to store on their iPod."
First off, the RIAA would like you to stop ripping your CDs to MP3s. Anyone remember that Sony rootkit fiasco?
Second, how much did you initially pay for those CDs anyway? More than likely it was more than $1 a song.
Third, Photos don't take gigabytes of data, not at a resolution intended for an iPod. If you keep your 8mega-pixel photos in the default resolution taken by your camera, you could probably benefit from some photo resizing software.
Fourth, unless you transfer all your high-def camcorder videos to your iPod, you still won't have 120GB of space being used (and if I'm not mistaken, the iPod won't down-convert, so you have to have iPod-sized videos anyway).
In the end, how many people have a legal library of music and video they carry on their iPod that consumes the entire 120GB? No, I'm not counting professional photographers/videographers or people using their iPod as a flash-drive for computer backups. I'm also not talking about people who violate the DMCA by ripping thier DVDs into H.264 or download ripped music and video. I'm just talking average joes with a large, legal music or video collection. Not many people, and even those who do probably spent a fortune getting that library in the first place (i.e. microsofts $30k argument is still valid).