If you're building a piece of software that needs to co-exist with other memory intensive processes, the JVM's policy of taking memory and rarely giving it back can cause unnecessary swapping. Heaven forbid you need to run multiple JVMs on the same machine (like with hadoop).
Then you start having to do silly things like specifying how much memory your app is allowed to use which makes me feel like I'm on classic MacOS.
I used this approach in the past to keep memory usage lean. I had some spikes in application that required a lot of memory, so had to keep Xmx high, but configured the app to trigger deallocation to the OS when there's more that 20% of free memory. Worked like a charm even on and old ere 1.5 Sun JVM.
[1] http://www-cs.canisius.edu/~hertzm/gcmalloc-oopsla-2005.pdf [2] http://sealedabstract.com/rants/why-mobile-web-apps-are-slow...