Well ... it certainly is possible, cuz it's only as thick as a pencil, but it's still wide ... that means a small hard-drive can still fit in there ... and yeah a hard drive that size can store at least 4 gigs.
As to whether it is worth buying:
If you like mp3s then get it.
If you are like me and think the sound quality of mp3 is lame to say the least ... then dont get it ... I wont

... I'm an old man and I use something which many o' you younguns havent seen in ages .... a CD player ... but I can tell you something kids ... the sound quality of a CD player is infinitely better than mp3. Only down side is it takes up about 10x the space on digital media at least (assuming CD is wav quality) ... but what do I care about space I can fit all 6 of my cds into a -- slightly larger than a wallet -- sized case

And lets see 6 x 800 MB per disk = 4800 MB or about 4 gigs ... and only 4 times the size of the new nano-pod

( 4 nano pods fit into about a wallet sized CD case + CD player ... actually I use my car's CD player more often than the hand-held one) Hey but quality is about 10x better ... so doing the math ... 4 x size but 10x the quality ... I choose the CD player. (Not to mention that you can accidentally erase all you music on the iPod with about 2 key-strokes ... as happened live on CNN and I will never forget)