I would recommend double 16gb sdhc cards ($74/each at newegg.com); they'll definately come in handy. As far as initial apps to install, these are my recommendations:

Transmission(works great, downloads everything to sd)

VNC viewer (so you can control your desktop remotely, very cool)

Fbreader (e-book reader)

Pidgin (PIM app)

Maemo Mapper

Camera

KDE 3.5.8 v2 (when it's out, and if you're technically inclined enough, this is the Full KDE with Koffice by PenguinBait [he rocks!])

That's what I run, personally. And I would definately update to os2008 (2007, like the year, is over and 2008 is where it's at). Hope this helps.