Remember, they released the 360 a full year before the PS3. With that in mind, the price of HD’s change dramatically in one years time, smaller density drives get cheaper, etc. Whether that was a reason for the decision to go with only a 20 gig drive or not, who knows. What they should do is allow you to do is upload your content via Xbox live so you can send in your 20 gig and exchange it for a 120 gig for a reduced price. They probably won’t but that’s what they should do.
That being said, I agree with what Raven said, games and content drive a system regardless of how much better/worse the hardware is.