It depends, if you have a spare external hard drive, 120 will do, most games don't need to install, but it is anywhere from a couple of hundred mbs to 4gigs.
The real question is, what do you intend to do with it, if you plan on having media such a photos, video, and music on the ps3 then you will need more than 120gigs.
Of course you can always get the 120 then put a new hard drive in, you can do it, the one thing Sony did right was let us change the hard drive, they even show you how to, its rather easy not much harder than putting a hard drive into a pc.
I had the 40gigs model, it was enough for me, but i put a 320gig in when i chose to hack my ps3.