Actually, the problem is not with cloning the drives (which is quite simple with apps from Acronis and PowerQuest), but the real problem is the firmware on the system board. I've read about people doing this on many game consoles, including the PS3, and I've tinkered around with a few game consoles and PVRs myself.

Presuming that you would be adding a larger hard drive, for example, the firmware on the system board (same thing as the BIOS on a computer) has to be able to recognize the larger capacity and other features such as rotation speed, etc. Some firmware chips can be updated with a simple software install (I think the Vii can do this), but others don't provide this convenience, thus requiring chip reprogramming (as in the old days with EPROMS) or chip replacement. The are lots of hacker sites that describe how to do this on the old XBox, and you could probably pay someone to do this for you, if necessary. But all this is obviously not what the manufacturers want you to do as they want to sell you new units and new accessories / upgrades.

This is why the external drive option is, in my opinion, more convenient. No more ripping things open and hacking chips. Personally, I'm not convinced that USB (even 2.0) is fast enough for such a connection, though, and I would prefer to see a Firewire-800 port on there instead.