I really think they're saying that the Chrome OS will be designed to boot from flash memory and not from a hard drive -- and not, that your device needs a 64GB or 128GB SSD, or that you can't access a hard drive on the device. 'Nothing' is stored on your device running Chrome OS -- everything is stored 'in the cloud' anyway, so you wouldn't need much space to run Chrome OS. It sounds like it will be featured on MIDs and netbooks and as a secondary, instant-on OS for notebooks and maybe desktops. The notebook would have both an x86 CPU and an ARM CPU, with a dedicated flash memory drive just for Chrome OS; otherwise, it's just like any other notebook PC. That ensures that the boot time will be fast and lengthens the battery life. (That design for a notebook with an instant-on secondary OS is real; I don't remember who is making it, or what instant-on OS they were working with.)
Imagine this scenario: a $250-300 5" touchscreen MID with subsidized 3G service costing $15-20 per month, with GPS, webcam, wifi, media playback, and an 8 hour battery life. Or a 7" "smartbook" (they're supposedly coming out soon -- basically like the HP Journada in design) for $200. Or a 10" netbook for $225. All of them would cost less than a Pandora.
If Google could subsidize 3G service on a limited, all-browser device to the point where it costs a little more than Tivo service or Netflix membership, that would have a huge impact, IMO. I think they could be working towards that, based on their overall philosophy, but not based on any real information. I do think the recent rumor of a Google phone is actually about a cellular data device, not a phone. And I've seen something online (a rumor of a rumor) to that effect. If Google is really going to make their own name-brand cellular data device, I can see them going for the gold and arranging for a subsidized data plan.
My main question is, what does Chrome OS do when it's off-line? There should be local storage and syncing, but that's really the question. If it does, then it would have off-line document editing and PIM functions. Anyway, I believe that it would have to do something when you're off-line, rather than just showing a "not connected to a network" error message.
I've said this in a recent discussion of Android for Pandora: any fast-loading OS that just gets you on the internet would be a great secondary OS for Open Pandora. If there are built-in document-editing and PIM functions with online syncing, all the more so. So if Chrome OS could work with the Pandora, that would be swell. Better than Android, because all of Google's services are designed to work completely well within a browser. (Except Navigator, but that's still in beta...of course.) However, Google seems to have implied that in order to get Chrome OS, you have to buy a device designed to run it. So we'll see.
Anyway, very exciting to think about.