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To clarify some things, the OS and BIS are both stored in the same place, that is, the flash ROM.
As someone said, it's similar to partitions, in that the OS is stored in one read-only 'partition' and user data (BIS) is stored in another 'partition.' This is why BIS is less than 128MB, the rest is reserved for the OS 'partition'.
If your ROM was to completely die, your device would indeed be a brick, although that is unlikely to happen since we don't rewrite the contents of the OS 'partition' very often at all, just when we do a ROM upgrade (A05 etc.), but you could slowly damage the user section of the ROM, especially now that it is the primary space to store user data.
If a section on the ROM was to die (wear out), that area is marked as unusable so that no other data gets written there. Once this section has been marked as unusable, you would have slightly less ROM space available than before. I'm assuming bad data blocks are a few KB each, much like hard drive bad blocks.
As for gamekill's comments, I'm pretty sure you will be able to roll back to WM2003SE, but I don't think it will be necessary, and I doubt it would be possible to install WM to a storage card, although it might be possible to redirect user data such as the contacts database and such to a storage card if it concerns you.
Also don't forget that this problem won't appear for quite a while, and even when sections of the flash ROM go bad, your device won't instantly die, you will still have usable parts in your flash ROM, but it is something to consider I guess.
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Dell Axim X5 Advanced (Broken LCD) > hp iPAQ H2210 (Broken) > Dell Axim x50v
Dell Axim x50v, 4GB Hitachi Microdrive, 1GB Apacer SD, Bluetooth GPS, VGA out adapter.
i-mate JAMin.
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