Given the choice, I would personally buy a HD. I find the 4 gig (or whatever it is now) limit to be, well...limiting in what i can back up. I also don't like having to buy more dvds, have stacks of them to sort though, or have to go through them one my one if I would have to restore. You can also use the space as a scratch disk.
However, I also have an external dvd burner (Pioneer I believe, and I'd recommend it), and it is nice to be able to make dvds of family vacations and things of that nature. They may or may not last longer, as well.
I'd buy the HD for flexibility. My $0.02