The original PS3 consoles had only 20GB hard disks, which is why MGS4 installed in different parts per chapter. Disk fragmentation could also be an issue, though the PS3 is supported to use a file system that's resilient to that.
As for the 360, Microsoft should have allowed for games to be packaged on the HD-DVD addon, for specific games that could have benefitted it, then again having games rely on addons early in the consoles life is not a good luck. Plus since its using USB, they may have been worried about security/piracy.