[quote name='seanr1221']
Are some games still locked to the system and not able to be transferred like Smash Bros? Can VC games and saved files be directly read off of the SD card yet?[/QUOTE]
First part: Yes, generally first party games do this. Nintendo still sees it as a copyright issue. Not all of them do, obviously. Smash is the big abuser.
Second part: Yes and no. In short: Largely no, since the solution just copies stuff back to system memory, and you need open blocks to accompany this. But there's a lot of variables here, so read on if you want.
There is now an "SD Card Solution" in place that allows you to use SDHC cards with higher capacities than 2GB, which was the initial limitation. So you can throw in an 8GB or so in there. You can then transfer VC games and channels and so forth to it.
However, whenever you want to play one, it has to be loaded into the system memory proper. In other words, the 512 meg flash onboard memory is still a limitation.
Say you want to play Mario 64, which you've downloaded from Wii Shop. It's 90 blocks big. For whatever reason, you only have 60 free on your system. To play it, you'd have to clear out 30 blocks somehow, and then load it from the SD card.
See, the SD Card Solution really just transparently transfers back to the system memory. It does not stream games from the SD Card. So it works if working to you constitutes throwing up as a way to lose weight.
Now, there's another part to this. Certain games allowed you to use the SD card for external files. Think Guitar Hero and Rock Band - you could download tracks and save them to the SD Card. Well, if the game came out before the solution, it was programmed to only search for a non-SDHC SD Card. It will not find a higher capacity one.
In other words, if you downloaded some tracks to an old 2GB card, but then copied everything over to an SDHC card, the game won't be able to find them. The only way around this is to use the old card (unless developers went and patched games, but this won't ever happen).
Now, some games these days do search for the SDHC cards, and can stream data directly from them. Nintendo's stance that you can't run files from the SD card is basically laziness on their part, because Activision (of ALL people) is doing just that with Guitar Hero these days - files saved externally are being loaded directly from the card in-game. They've got it set up so that you can play songs while still in game, even if they are on the SD card. It loads them on the fly. Other developers can do this also, but when even Nintendo won't, I doubt we'll see too much widespread use. Which is dumb, if mostly because there's no excuse for Nintendo to not have had this available since day 1.
Basically, because of having channels and save data on your system, the "best" way to handle everything would be to just have it all on your SD card. Games don't take too long to move back and forth, and then you never have to mess with memory management ever again. It's annoying in that it creates "load screens" (ho ho), but at least it erases all doubt in the "Do I have enough open?" camp.