"But if you really need such a huge memory, is the 8051 really appropriate?"

In my opinion no. Chips such as the Philips XA are in the same price range as full size '51 chips and when you have added the cost of logic gates and the debugging time encurred developing bank switching have you saved anything ?

However, for large address '51 have a look at the Philips MX series, as opposed to plain vanilla bankswitching they do things like saving 24 bit addresses on calls.

As for which memory to use, SRAM could very well show itself price prohibitive. Flash is a possibility if you can live with paged erase. Have a look at the Philips XA-H4, it has built-in dynamic memory refresh. Of course, you can code dynamic memory refresh using any chip, but it will cost you a timer and an interrupt.

Have fun,

Erik