It looks like 512mb is not enough memory storage for the Wii, not even for the Virtual Console. Part of the reason is the emulator included within every game available from the Virtual Console. With even bigger games coming from SNK's Neo Geo system, it looks like this memory limitation could have a big effect.
Last night I purchased The Legend of Zelda II : The Adventure of Link for NES on the Wii Virtual Console and Ordyne for TurboGrafx-16 and in doing so I maxed out the space on my Nintendo Wii. There is a set number of Wii channels slots available and each Virtual Console game takes up one. I used up all of the available channels and are pretty close to filling up the 512 Megs of storage memory in the Wii system. One of the reasons for this is that on each Virtual Console game the emulator is included with the ROM image so if you have fifteen NES games you have fifteen copies of the same emulator.
Whenever I make a purchase from the Wii store I back it up on a 1-gig SD card that I have in my Wii but you can't run any programs directly off the card. If I wanted to buy more game I will have to delete some on the Wii to make some space and then either copy the data back from the SD memory card or re-download it from the store. Also it is worth pointing out that Virtual Console save game data is stored in a different place so if you delete it from the Wii channels you will not loose your saved game data and it you will not be charged for downloading the same file over again from the Store.
Also the SNK/Playmore NeoGeo game system is due on Virtual Console later on this year and some of those game can be over a hundred megs making it impossible to buy several of them on a single Wii without having to wipe one out and make space. Also Hudson would like to be able to run TurboDuo CD games in their Virtual Console store and even with compressed audio that would mean some serious data storage needs.
This is an issue that I hope that Nintendo will consider addressing in a system update. What I would like to see is the ability to have Wii Channels run on an SD card and to use the USB ports on the back of the Wii to use USB devices as storage. They will probably work something out by the time that the massive NeoGeo games hit the Virtual Console.
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Nintendo has contracted a hard drive company. No hard drive was actually announced, but I'm sure one is coming soon. To become compatible with external hard drives, all we need is a firmware update. Why it took so long is unknown, but I assure you that Nintendo is aware of this. Neo Geo games can go over 700MBs. They aren't going to put those up if the memory isn't enough.
Also, this article isn't talking about actual memory space, Gogetenks, it is talking about the limited number of channel slots on the Wii home menu.