In Atari/Amiga days when software came to you on floppies there was usually a little something 'Extra' Loud gunshots and bullet holes appearing in the screen was one. A distant siren sound getting loader and a police car races across the screen. The top taskbar would turn upside down Oh so many more and the relevant software- a graphics program perhaps or a word processor and all on a single 1.4Mb floppy too
The answer is quite simple, they used "Machine Code" in those days which is the original computer language, It takes up a fraction of the space that a modern program uses today. The use of the modern programing languages uses much more space than the old Machine Code did.
Take a look at the new "Vista", for example. It uses a massive 15gig of disk space. That is a lot of space for an Operating System.
Now, If this Operating System was programed using the original Machine Code I suspect the whole Operating System would take up no more that 1gig of space. I believe it would also run much faster than it does now.