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I'm running the latest iOS released this week on my 4G iPhone 4S, 1.7G still free. Granted, I don't store videos/photos (long term) that much.

The storage problems are exacerbated for the newer phones, largely because the cameras keep taking higher resolution pictures.

so apparently you had enough space to do the OS upgrade? good to know. But still, apps will be much smaller with app thinning.