The HTC 8S. Here's a phone that is great to look at and to hold, yet by sporting only 4GB of onboard storage it is a horrendously crippled device. After installing a handful of applications users will start to see error messages about a lack of onboard storage. This will not go down well. Some larger applications will refuse to install at all, whether the phone is chock full of apps or factory fresh. At least in the latter case users may be able to return the device and switch to something less compromised. If Microsoft are lucky it might be a Nokia.
The 8S is being pushed as an entry-level Windows Phone by several operators in a number of territories. The presence of expandable storage will lull buyers into a false sense of security about the 4GB of onboard memory, they'll buy and only later realise the problems they face.. Any short term gain will be wiped out as soon as these users bump up against that storage limit. A poor state of affairs for both Microsoft and HTC.
If Microsoft is to have a hope of growing its phone business it needs to address this sort of thing quickly. Its not fair to blame HTC for the problem, after all Microsoft set the limitations for Windows Phone hardware. Did they really not foresee this problem?