Why use MTP instead of USB Mass Storage?
Simply put, MTP is now the standard being used to stop OEM's and carriers from giving you oodles of "storage space" and very little application space. That's not the ramblings of a crotchety old Android geek, but the word right from Android engineer Dan Morril:
We didn't do this because we wanted to use ext3 (although that is a side benefit.) We did it because we wanted to be able to merge the "public shared storage" (i.e. for music and photos) with the internal private app storage.
We got tired of seeing OEMs include many GB of internal storage for music, while users were still running out of space for apps and data. This approach lets us merge everything on one volume, which is way better.
USB Mass Storage has one big drawback -- when you mount the storage partition (whether it's an SD card or an internal block like the Nexus S has), you've dedicated the entire partition as in use by another machine. This means the original host (that'd be your phone or tablet) doesn't have access to it, and the new host (the computer you've plugged your phone or tablet into) is allowed to do bad things that might mess it all up. That's why moving some applications to the SD card -- and especially widgets -- would sometimes end up in wonkiness.
As a bonus, using MTP means that Android device makers no longer have to use FAT file systems on device storage, and can use ext formatting to make things work a bit better and faster. Devices will still be sold with SDcard slots, and they will be able to use the same USB Mass Storage mode that we're used to, but new devices without removable storage should all use MTP from Ice Cream Sandwich forward.