Imagine if there was no lag opening any app because everything was in memory. Imagine your code getting simpler because you don't need to load assets off disk - that's done all in one go at boot time. You want to render an image out? Just do it - a reference to a file is a reference to a file, no loading it or wondering if it's loaded.
Flash storage in phones is fast enough these days that it's probably not worth it, and simply giving traditional phones lots of RAM will probably give 80% of the improvement for 20% of the cost. But I've been curious about the idea for some time.
PuppyLinux did this for the Eee PC. Worked wonderfully. The only problem was that the distro eventually became outdated, filled with old packages.
In other words, you don't need a ton of space. 8GB split among OS, apps, an running programs would do pretty well, honestly. 16GB is definitely enough. The question becomes more about how much space you want for photos and mp3s, and whether there is actually a benefit to putting those in RAM at all.
Also, you may need more RAM than flash, as large resources may/should be compressed in Flash (and personal data should be encrypted)
The data is gone if you restart tho.