Hitachi announced today that 20GB 2.5cm hard drives will be commercially available by the end of next year. This represents a "density breakthrough" which will allow much higher capacities than today's drive technology. Current micro-drives, such as the ones used in the iPod Mini, max out at 6GB. This new "perpendicular" recording technology would allow for a 20GB iPod Mini in 2007. Capacity of such micro drives are expected to reach 60GB within 5-7 years. The technology, of course, will also bring increased capacity desktop drives which could max out at one terabyte.
News source: ZDNet