…Is it better to just max out RAM and not worry about the scratch disk situation…
Absolutely not ! That would be sheer insanity. The scratch file can be hundreds of GB. You cannot remotely install hundreds of GB worth of RAM !
Photoshop creates a scratch file the instant you open an image file or create a new document. Every single time, no exceptions. It sets its size based on total image file size, number of layers, number of history states you keep open, etc.
The rule of thumb I follow to figure out scratch space says to figure on 50 to 100 times the size of your largest file ever multiplied by the number of files you have open. I have seen the scratch file exceed 800 GB once, an admittedly rare occurrence, but it often exceeds 200 GB when stitching large panoramas and the like.
As an example—and stressing that I'm aware that others have even more scratch space than I do—I keep two dedicated, physically separate hard drives as my primary and secondary Photoshop scratch disks and a lot of GB free on my boot drive for the OS. I also have 16 GB of RAM installed.
Additionally, if you only have a single HD, i.e. your boot drive, you'd need it to be large enough to accommodate both the swap files of the OS as well as Photoshop's scratch.
The best option is a second internal, physically separate, dedicated hard drive. A FireWire external, dedicated hard drive also works nicely, I have no experience with Thunderbolt drives.
Wow. Great answer. Thanks, so much, station_two!