Surely we should be past this by now. 2.5" disks are common in 750Gb and just hitting 1Tb. 3.5" disks are cheap at 1Tb and just hitting 3Tb. 1.8" disks have hit 320Gb. So the home server, the laptop and even the netbook shouldn't be a problem and generally they aren't. You just have to go through the pain every so often of transferring all the data and upgrading. Meanwhile SSD are still a factor of 10 behind in space for the same price.
But the device that's run out of space is the iPod Classic 160Gb. Trying to clear enough old stuff out to fit the new stuff in was an exercise in frustration.
I've had this problem for about 3-4 years now and every Jan, I have a good moan at Apple for forgetting about the iPod Classic, doing nothing about a 320Gb update, and for using a proprietary disk connector so that a 3rd party upgrade is impossible. And even if the disk space could be upgraded the software can't use the extra space.
This is the point where somebody says I should be using the cloud or a streaming service. There's all kinds of reasons why this is not an option. From GeoTard apps that are not available in my country to obscure musics to storage limits. I don't want any of that. I want all my music in my pocket.
3 The Wash
It's not a great solution though, like you said there's the problem with services not being available in different countries. Then there's not having access to music if you have non-mainstream tastes, data allowance usage if you have to stream over mobile networks, not having a signal (it's rare for me to get a signal at all at my office desk) etc...
But like I said, even if you get an old iPod Video or 5.5 and fir the 240Gb disk, the software can't cope because there's a couple of hard limits, Either you hit a limit on the total size of the metadata database or the total number of songs.