When a lot of people need it.
I don't think there are a lot of people that need 128 gb.
With due respect, I believe the added space would enable the device to be more versatile. Just as the original iPod taught people that they "needed" it, the added space would make it possible for the device to do more things that people "need."
For example, 128 gb paired with a high quality camera/camcorder would likely move some of the camcorder market onto the iPod bandwagon. Not all, but some. Not to mention more room for TV episodes or movies for the daily commute or dragging flight. Better games and applications were already mentioned in this thread. I just don't think the product is done growing yet and space is something that has been doubling without purpose for years, leading to new uses and better quality media. Not only does apple need to provide the space, they also need to consider slightly better sound quality. I know I would welcome it. The difference between the headphones jack and the actual quality of the file is noticeable.