At December 1996 prices, there's really no reason to consider buying less than a 1-gigabyte disk. This is a convenient size, because "install everything" on most Linux distributions will lay out more than 540MB but less than 1GB of stuff.
If you can afford 2GB, the natural thing to think about is buying a 2GB disk instead. But personally, I like a configuration with two 1GB disks better -- one "system" disk and one "home" disk. There are several good reasons for this kind of setup. Most of them come down to the fact that you are quite a bit less likely to trash two disks at once than you are to trash a single one.
A lot of us do Linux upgrades every three months or so. Wouldn't it give you a warm, comforting feeling during your next one to be able to dismount your "home" disk in advance and know that there's no way the upgrade can possibly step on your personal files?
Or let's suppose you have a fatal disk crash. If you have only one disk, goodbye Charlie. If you have two, maybe the crashed one was your system disk, in which case you can buy another and mess around with a new Linux installation knowing your personal files are safe (see above). Or maybe it was your home disk; in that case, you can still run and do recovery stuff and basic Net communications until you can buy another home disk and restore it from backups (you did keep backups, right?).
You can even tune your disk configuration for performance this way. SCSI controllers can interleave requests to different disks, so your swapper and other system daemons will be able to use scratch files on the system disk at the same time your applications are using files on the home disk. Thus you may find you actually get faster throughput with two smaller disks than one big one.
To get the most leverage from this effect, choose your system disk for access speed and your home disk for capacity. In December 96 I would ideally choose a 1GB fast system disk and a 2GB home disk.