Rooting your phone will allow you to virtually increase the desire's internal memory to pretty much anything you could need.
Read all of these guides:
http://androidforums.com/desire-all-things-root/302882-index-my-htc-desire-root-guides-faqs.html
my 2 cents, I would also consider the merge a downgrade. In fact, I recently got given a samsung galaxy s for free, and after rooting it and playing around with it for about a week I was already bored as there aren't many developers pushing good custom roms for it. The desire is very popular amongst developers, as opposed to many other phones with better or similar hardware specs, and this is a huge plus IMO. The internal space is a non issue for me and I have almost half a gig of apps installed, and plenty of space for more, thanks to rooting and the setup I've chosen.
If you don't want to bother with rooting, etc.. and spending time on it is not for you, then just buy a phone with a lot of internal memory and run it stock, it would be an upgrade in your case... just not in ours
good luck!