The problem isn't just how much memory it uses, it's the fact it doesn't seem to do a good job of managing it even for its own purposes. FF has traditionally kept huge amounts of stuff cached in memory, and then still had to resort to the disc cache when it wanted to store more. This can result in huge pauses for disc swapping even when you only have a few tabs open, because everything you've done in your browsing session is still in memory. How much of this is design and how much is memory leaks, I don't know.
FF7 finally does seem to have made some improvement, but how much I don't know yet as I haven't really stressed it yet.
Flash crashes aren't straightforward crashes, they are some sort of race condition where FF takes up your whole CPU and becomes unresponsive because it is trying to process something Flash related, forcing you to kill the program. I know that in at least on case that I could reproduce repeatedly, the Flashblock addon was the cause of this, as it did not happen with it disabled, so that may account for the discrepancy in user experience with regard to flash - some people are blocking it, some aren't.