Makes perfect sense to me - if you want a barebones console that you don't intend to go on to Live! with (i.e. for that still large proportion of people that don't have a broadband internet connection) then pick up a Core for substantially less. You may miss out on a game or two but you've got a next-gen console for £200, a bargain really.
Want all the goodies that Live! brings and the full range of games - get the Premium pack or the upgrade hard drive.
2.5" drives are also thinner, quieter and cooler than their equivalent 3.5" drives so it's not simply a matter of 'adding an inch' to the console.
I don't see why having an add-on harddrive is such a problem, people have no qualms about buying memory cards if they want the additional functionality of being able to save games, it's not much different from that really.