Hard drives are about 30 cents a gb these days, and only getting cheaper. I can remember my Dad commenting on the PC I got in the early 90s "You'll never fill that 170mb hard drive in your lifetime!" Now I've got just over a terabyte stacked next to me.
All digital photos start out as raw data, and most end up as jpegs when they are finished image files. Setting the camera to jpeg or raw is just choosing the processing software. If the camera is set to jpeg the in-camera processing software is used. If the camera is set to raw I get to choose the processing software.
I find the in-camera options limited; there's a couple of slider bars for contrast, sharpening, saturation, etc... with a few positions each. I prefer the wider range of control choices and precision adjustment I get with Lightroom or Camera Raw. I also like processing on large, calibrated screens. Yes jpegs can be reprocessed, but it makes sense to me to try to just do it right the first time. For many situations it probably doesn't make much difference one way or the other, but every once in a while, particularly when I'm trying to pull detail out of the shadows, I'm really glad I'm working with a 16 bit psd created from all of the original data, and I have the option of setting the tone curve for the very first time. But not everybody wants or needs that, and plenty of pros and serious amateurs shoot only jpegs with no problems.
When I first started shooting digital I saw a difference in the noise and contrast between in-camera jpegs vs processing raw files myself, so I've always gone with raw. I admit I haven't done much practicing with jpegs, nor experienced what newer processing software allows for processing jpegs. When I started white balance alone was enough reason for me to shoot raw over jpeg.
Raw files often look drab when they pop up on screen processed with the default software parameters. You need to figure out your basic processing settings, and save them as the new default or a preset. I am not familiar with the Nikon software, but Canon DPP (the raw processing software that comes with the DSLRs) can be set to process raw files as if it were done in-camera. All the same picture modes can be chosen, etc... So it should be possible to create a jpeg identical to an in-camera jpeg. With other software it would just be a matter of some practice and testing to figure out settings that would give similar results to the in-camera processing.
The in-camera software is only going to get more and more sophisticated. Every DSLR I've bought has more and better options than the last. I don't think it's going to be long before we'll be able to install our own choice of in-camera processing software in our digital cameras (I've already hacked my digital compact with CHDK). Instead of jpeg or raw the cameras will create smart objects or something that offers both options and more from the same file. Raw vs jpg will be a thing of the past, although out-of-camera processing will probably continue to be popular. At least until our cameras can display large holograms in the air, or jack the images straight into our brains.