Interesting. At 128GB it's definitely practical to put your system partition and applications on it. If you rely heavily on cloud services that would be more than sufficient for most people and even if it isn't you could add an SSD for music and videos.
If they release it next year and it turns out well, I can certainly see Apple pulling such a move for the MacBook (Air).
128Gb is only a small factor below state-of-the-art flash chips, if at all. I think 3d NAND drives it up to 384 Gbit/die. Don't know about the die size though.
