The point of having a large HD is so that you have hard drive space to waste. In other words, you don't have to constantly think, "Do I have room for this game on my HD?"
With the fall 360 update you'll be able to copy games directly to disc and play them off the hard drive (which is brilliant). With that in mind, 120GB isn't as big as it used to be. Sony will probably allow this on the PS3 at some point, which means I'll be copying over select games (I'm looking at you, Metal Gear Solid 4 and your intolerable in-between-level installs).