The Hero has 512MB of flash memory. This may seem like very little compared to the iPhone's 16-32GB, but what you have to remember is that most of the iPhone's space is for music and videos, not apps. The Hero has expandable microSD for your media.
From what I've seen on the Android Marketplace, most large apps will store the bulk of their data on your microSD card. There are very few apps that will use more than 10MB of your internal flash memory, most wont even reach 5MB. Filling up that whole 512MB of space with apps will take a while, and if it ever does reach the point of being full, you can always root the Hero and use apps2SD (assuming Google doesn't enable it in a future OS update, in which case rooting wouldn't even be necessary).