1) the machine should have all its flashes reprogrammable without removing the dice. Otherwise debug will be hell, besides, with such an "open source" architecture, allowing the user to hack the video chip "firmware" would be a great feature. :)
2) Support for external mass storage like a hard drive - yes. Necessity - no. I think the OS should be on a built-in medium so you could load the software from arbitrary source (or even enter it by hand.)
3) In most cases some extra built-in flash comes dirt cheap.
4) I agree, calling system routines inside internal flash from external memory program would be hell.

Conclusion:

Store whole OS in the flash (even may be compressed) just after the tiny bootstrap and make the bootstrap copy it to XRAM on startup before passing control to the external memory.