Not at all. I have a couple of hundred GB of movies and and music. The majority of the material I am not currently using, I keep on the external drive. When I want to sync it to my iPhone, I let iTunes make a copy of the file to my main hard drive. When I am done with it, I remove it from both iTunes and the main drive. My original copy of the file is still safe and sound on the external drive.
The situation you have is surprisingly similar to the ones faced by MacBook Air owners. A bigger hard drive would be nice, but if you can make do with a smaller drive, why not?
Are you still under Apple Care?
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-Larry and Harry Spotter
We're on the iRovr EIC stream
16 GB iPhone 3G 
8 GB iPhone 2G
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