Less storage
Yes, there is a Lumia out there with less storage: the Lumia 530 only has 4GB. This was basically a chassis designed by Nokia to run either Android or Windows Phone. The savings don't appear to have been worth it - Microsoft are essentially replacing it with the Lumia 532, which has 1GB of RAM and 8GB of storage for basically the same price. (The launch price of the 532 is actually lower than that of the 530.)
If you have the Windows Phone 8 or 8.1 emulators installed on your computer, you can actually see the problem by mounting the .vhdx file. The storage is divided into a number of disk partitions, with the OS partition being essentially immutable. This means a phone reset is easy, you just wipe the user partition, rather than having a backup copy of the OS as Windows 8 does on desktop, laptop or tablet. It sounds like it's impossible to resize the OS partition in a device update, in order to make more space, or at least not in just a Windows update. The talk of 'partition stitching' suggests that they might intend to spread the OS into more than one partition for WP8.x phones - of course the Windows NT volume manager driver has been able to do this since at least Windows 2000.
I wouldn't be surprised to see this partitioning behaviour go away for phones built for Windows 10. It's just added complexity. It doesn't look like Windows Phone supports the Compressed OS feature from Windows 8.1 yet, so there could still actually be a reduction in size from WP 8.1 to 10.