I appreciate all the replies and advice, thanks.
I only considered the cheaper HD because this will be my first experience with the MBA and I don't want to pay the premium in the unlikely event that I am not happy with it. I tried the HD in a local store (1.6 Rev B) and it seemed very responsive to me, and I also read somewhere about write speeds being much better on the HD. Although the apps I run will not be heavy photoshop, more likely unix and perl scripting with database back end.
The only way to know is to play with both, I'll see if I can get a straight comparison at an apple store.
That write speed issue is bogus. Write speeds are just as fast on an MBA with SSD as with HDD. Go look at an xBench test for it at xBench.com. Originally, SSDs offered double or triple read speeds, yet offered 75% of the write speed of HDDs. However, SSDs have improved dramatically since the beginning. The SSD in the MBA may not write 8x faster than the HDD, but it's faster. At the same time, the READ speed is over 8x faster (if I remember right). SSDs are going to end up reading 100x faster than HDDs within a few years. The tech is growing so fast. Take this opportunity to capitalize on a machine that really needs SSDs to make it fun and fast yet ultra mobile which is incredible.
So while the SSD in the MBA will not write as fast as it reads, it will write faster than the 4200 rpm HDD. Additionally, the SSD in the MBA is a Samsung, and it's a really nice drive actually for the price. It's also a 1.8" 5mm tall drive, so it's not upgradeable in the future from a HDD (not without serious work or modification anyways). So, considering you may use it for a year or more, you should pay a little more for the SSD now. If you get a HDD, you will be stuck with it!
Assuming you were going to buy the 1.86 HDD for $1499, don't do it but rather buy the SSD 1.86 refurbished for $50 less. ASK ANYONE HERE ABOUT THEIR EXPERIENCE WITH REFURBISHED MACS... about 95% state like brand new, a couple of battery cycles, and loved it!
That's my advice, but it's your money... good luck. Cheers.