What Ish said. My wife has the 8Gig and it's plenty for her. She says it's one of the best presents I've given her
You can make movies much smaller if you want to, there are converting programs that will shrink them to "iphone optimized" size (making them as small as possible, but so they are still full quality on the small ipod screen). That puts a movie at around 350-500MB usually.
I have the 16B iPhone. It's enough for me right now since I don't mind syncing it to change things up every now and then. If you had doing that, then the bigger size might be a good idea. I have 2 movies, some tv shows, several books. lots of music, and lots of photos on my iPhone.