Well, for games and apps you have to install them in your phone memory
But for music I believe you need micro sd card for that..
I have htc legend running 2.1 eclair, all my games and apps are "forcefully" installed in phone memory..
Music and pics in my sd card..
When 2.2 froyo is out however, we'll be able to install games and apps in sd card :)
edit:
I forgot something..
Just realized that when I download games or apps NOT from android market. Those games and apps are stored in the sd card, and then I need to install them manually
If I download from android market however, installation of games and apps are autonomous, but I'm not sure whether they're stored temporarily in sd card or not.. :)