Definitely floppies. I never knew anyone with a C64 & hard disk, but the PET ones were IEEE488 (floppies, winchesters, printers, teamakers, small aubergines).

Early Commodores (e.g. 32k PET 2001 on which I wrote a number of X-ray fluorescence spectroscopy programs) had more or less normal IEEE488 'GPIB' bus (I even had an external shoebox-size IEEE488 to RS232 interface used for connecting multichannel analysers without GPIB), while C64 had some kind of serialized version. But disk drives were definitively floppies, with considerable local inteligence and abysmal reliability.

Dragi "Bonzi" Raos
Zagreb, Croatia
Q#5196, MkII#80000376, 18GB green