On the SL-CXXX, SL-5600, and SL-6000, installing to SD definitely does *not* give you more memory to run programs. So if you have the space available, installing programs to internal flash instead of SD is a perfectly reasonable thing to do. Any free internal flash is, in essence, wasted since it can't be used for anything except storage. The wear limit in internal flash is on the order of 100K cycles per sector so it's *highly* unlikely that you will ever wear out internal flash sectors by just installing programs. Swap files, databases, frequently changed documents, etc. are a different story and keeping them on a memory card is a pretty good idea.
Now, one good reason to install stuff to SD and preserve internal flash space (assuming you're running a Sharp or Sharp-compatible ROM) is that there are some programs that will *only* install to internal flash memory. Typically, server type applications (apache, mysql, etc.) and libraries need to be in internal memory. If internal memory is filled with stuff that would work just as well on CF or SD and you run across an app that must be installed to internal, you're out of luck.
My rule of thumb is that if an app is a fundamental part of how I typically use the Zaurus it goes to internal flash. If it's just a convenience or nice to have, it goes to SD (assuming it will install there without issues).