Well... I haven't talked to him so I don't know exactly what Hashcode has going on here but it shows that I have 1.66GB internal storage and shows my 64GB sdcard as external. I can install apps from the market just fine but when trying to install paid apps, the market seems to think that it's trying to install to USB storage or SD Card.
I did set it up to have a 2GB system if that helps.
Ah OK. That makes sense. Its only happening on paid apps. But regardless it's still not showing all of pur internal memory. We'll have to see what the man says!