I recently set up Debian with LVM, though my main goal is to use it with a couple external drives. While I used LVM on my SD card, I'm using only the SD card as the physical layer in that volume group -- not using NAND at all (aside from the bootloader, of course).
I installed a 16G SDHC card and still have 14G free, so the extra ~512M isn't really useful to me.
You've probably already found this, but I followed these steps for loading Debian:http://www.cyrius.com/debian/kirkwood/sheevaplug/install.html
I don't recall having an option to use both NAND and SD -- just one or the other.