There's no way they'll keep the video in the HDD: it means the PS3 will be constantly writing to the HDD while you play anything, which would increase wear and tear by quite a lot for no need at all, since only a fraction of that video will be actually saved.
Also, the PS3 has a hardware h.264 encoder, so the videos are going to be far smaller than FRAPS video, probably under 200MBs.
The PS3's already going to be doing constant background writing due to predictive downloading and game data caching, why not another 2 or 3MB/sec?
Not sure I'd want to do it on a SSD but it should be no problem for a mechanical drive.
200MB is way too small of an estimate, too. I've been working with busy 30fps game footage, and even with x264's more CPU-intensive modes you can push close to that per minute at 720p, at a relatively conservative quality goal. 1080p 60fps... Yeah, if it's 15 minutes you're basically looking at all of the added 4GB of RAM just as a video buffer.