My ruleof thumb when I buy new games is that if it's something I plan on playing a lot of, I will install the game to my HDD.  This way when I play the game, the disc is not spinning, and there is much less of a chance something will happen to it while it is in the console.  It also lengthens the lifespan of the physical disc and can help prevent bad things from happening to it, even if it's not the best quality disc out there.

Currently I have Gears of War 2 and Borderlands installed, because those are the two games I play copious amounts of.  I had Fallout 3 installed for a while, but once I stopped playing it so often, I took it off to save hard drive space.

JB