I am expecting memory to continue reducing in future.
Of course it will. Computer code consists of lines of various instructions and actions. If you extend an app's codebase, it's only logical that it will become bigger and be made up of more characters. If you have a text file in Word, for example, on one page and you write an additional page, you can't expect that the size of the final product will be smaller or even the same as it was before. Unless they find a more efficient method to compress or shorten the code (which I doubt), the internal storage of the Nano S will continue to shrink. Those using the device can either accept that or switch to something more powerful.
I disagree. Often, during software development when you built something, it wasn't all the most perfect, efficient code. So when you maintain your software properly, instead of (as you described) just adding more and more stuff - which would be called 'bloating' the software - you should focus on improving it by simplifying things and the codebase can definitely shrink over time.
It's also a developer's duty (in my opinion) to consider the device's capabilities that the software is made to run on. If you have to develop software for an extremely limited embedded device, that should allow users to install extra stuff onto it, you better focus on actually leaving them space to do so.
It's as if Apple would release an iOS update that fills up 50GB of the phone's storage for the OS, leaving just 14GB for data, for instance. Meanwhile releasing a game on Steam that is 50GB in size, could be more reasonable. Developers should keep in mind the hardware before publishing a bloated firmware that deletes existing apps..