Hard drives are less reliable than flash.

And the regular iPod that I have is over 3 years old. It has the 60 GB drive but is thicker and heavier than the iPhone 3G.

Moreover, my Nano and iPhone are much more responsive when selecting a track to play. Starts right away whereas there's a delay on the old HDD iPod.

Lastly, much better battery life only for audio on the Nano and the iPhone.

There are also SSDs coming now which are faster than most hard drives. They're expensive and have less capacity but over time, the cost differential should decrease.