So with all this space would you really mind dedicating 2GB for OS. I wouldnt. This is a fully functional piece of equipment, once you get past the matchbox and hildon UI, built in limitations. Its like having a real computer, not just a neat toy. Flash could become a recovery tool/OS load tool. Just plug in your SD card and push the OS from the flash and reboot.

Imagine how many problems support nokia could eliminate. They could always boot to the flash and run diags with the user on the phone. If everything passes, tell them to put in the 128MB and test boot, some small test image. Everything works good, it must be your SD card. Tell them to format and reload, if that fails "contact your memory manufacturer".