I don't think it's a case of portable storage outpacing HDDs rather there has been a change in attitudes to what is stored on disk as opposed to offline media. The availability of digital media and the appearance of media centre type software has, I think, led to people not wanting to have to hunt through shelves of CDs/DVDs looking for what they want. The proliferation of multi-channel TV (and PVRs) has given us an "on demand" culture when it comes to entertainment so it's almost natural for people to expect their stored media to be just as available.
Now you've got two options to achieve that, whacking great big DVD jukeboxes which are big, slow and expensive or digital storage on HDD which is quick, cheap (relatively) and physically small. The sensible choice is obvious.
As to your question, I don't know how much further traditional magnetic disk storage can go before it hits a physical limit of data density. There are alternative technologies out there but they're all still at the theoretical stage - I remember seeing something about some guys spelling "IBM" with a couple of dozen Xeon atoms and there was suggestions that the techniques could be used for data storage. Unfortunately the cost, size and lack of speed of the kit involved kind of rules it out as a practical replacement for HDDs at the moment.