Well, it is possible to install/move apps to the SD card, but it requires a bit of fiddling.
You'll need to "root" your phone, and partition the SD card so Android can install aps their.
The next question your going to ask is "How do you root your phone?"
Suffice to say, it's as I said, it' fiddley.
Here's a guide to show you what I'm talking about.
APS to SD Tutorial
There is light at the end of the tunnel, though. Installing APS on the SD card is due to be included in a later release of Android. Although not 2.2 I believe.
@Sparkymarky.
When you connect your phone to your PC, from your phone, do you mount the SD card?
i.e. Menu/Notifications, press USB connected, and choose Mount. You should see the SD card as an exteral USB drive.
NPC is still a bit crappy at the moment. If you wish to use NPC,
Menu/Settings/Applications/Development/
and enable USB Debugging.
Now NPC should see your phone.