They could also do things like when it's a multi-language release depending on what you have set in your PS3 account it would only download and install your language data. Also don't forget the PS3's HDD is swappable you can pull out your 20,40,60,80,120gb HDD from your PS3 and put in say a 1TB HDD at which point storage wouldn't become an issue. I have Socom: Confrontation installed from PSN. It takes up 2,740 MB. I have a whole bunch of movies and shows some HD some SD.
Even with all of that and this installed game along with some demos I still have around 30GB left! 80GB is a moderate amount and most people don't store much data on their HDDs. And why did they go with bluray!? Your crazy just look at the multidisc xbox 360 of Final Fantasy XIII vs the one on the PS3 which is a single bluray disc you tell me which is the superior version.
That's very short sighted IMO. Not every ISP is doing that! That only affects a very limited amount of people not enough to warrant Sony to drop that feature altogether. Also every game is not going to take 20-50gb that would be insane. Techniques could be utilized to make the download package smaller. An installer system could be used where they used highly compressed files as an install base.