People are really are clueless about this 32GB on-board space.
First of all, most games on Nintendo consoles are below 10GB. Very few are over (Smash Bros, Xenoblade X comes to mind).
Second thing, do you know how much money this 32GB cost? I'd bet that 512GB of it would be incredibly expensive and would add quite a hefty bit to the initial price. Then people would just go "599$ for a Nintendo console/hybrid! Too expensive!"
Third thing, the rebuttal of the second point would be to use a spinner (good ol'HDD). I don't know about you but... a spinner is kind of fragile to shocks and magnets. Somebody drops it on the ground and then they call Nintendo because their system won't boot or give errors and they get told that the hard drive is dead coz they drop it. This kind of memory in a portable is a big fat no.
Fourth point: Nintendo always had expendable memory. I don't see why this one wouldn't. AFAIK, the 3DS can use up to 64GB cards officially. And if Nintendo supports SDXC cards, then, it will be an issue coz I think the limit for these cards are like... *checks Wikipedia* 2TB, exFAT and 300MB/s transfer rates. So a non-issue. Of course, 2TB doesn't exists and 256GB and up cards are expensive but still, they will get less expensive over time and new formats will come.
Fifth points: there are still unknown points about the dock itself. Will it have USB ports? Ethernet? Etc. If there are USB ports, it'll probably support external HDDs and Nintendo will find a way to send games one way or another easily so you can have a selection on the go and the rest of your collection at home.
...and this if it's real that is...
For me, wait and see.