The copy of 10.2 that shipped with my Powerbook was on a DVD. Apple's been doing this for at least 2 years now.

Yeah, this is the case with basically and hard disk. My 20 GB iPod is around 18 GB, IIRC. My computer's 40 GB hard disk really is a few shy of that. On the iPod box somewhere, as with most other devices, there's probably a disclaimer saying "actual formatted capacity less."