As others have said, 16GB will be sufficient depending upon what the device will be used for. ...
Another reason is due to the "I must have my entire media library with me at all times" mentality that is all too common. For those of us who huge media libraries, we have been past the point where any consumer portable media player can hold our entire collection, so we are already dealing with that.
Obviously more memory is better. ...
Agreed. I was originally put off by the iPod Touch because it could hold, at best, half of what my 5G iPod could hold. At the time, my iPod 5G was holding my entire music library, plus a few videos and a couple of games. Once I broke down and bought an iPod Touch, I realized that I could still fit days worth of music on it, several videos, and several applications and other files just by managing my media a little better. Smart playlists rotate my music. I don't watch much video on my iPod, but I keep a few files on there just in case. I have many ebooks on my iPod, and they take up only a small percentage of my space. The upshot is that with less space I have access to a lot more kinds of media and more kinds of information. The downside is that every now and then I get hankering for a specific song or album and find that it's not there, but that's a rare occurrence because my top rated songs and albums are always synced.
That said, I always go for the highest capacity. My iPod Touch is 32GB, which was the highest capacity when I bought it. I am very hopeful that I'll be able to shell out the extra $200 for the 64gb iPad. I am confident that with some good syncing and file management strategies you can get by with even the 16gb device, but I also know that I will have no problem filling up the 64gb version if given the opportunity.
And your intended use can play a big part as well. I think, generally, in terms of file size video > audio > photo > text. Applications are generally where? Less than longer video files, I think, but larger than smaller audio files. But that's a guess. If you're really excited about watching video on this thing, then I would seriously consider trying to get something higher than the 16gb, but even with 16gb and frequent syncing you could get enough video to keep you busy, but I expect you would always be bumping against that storage limit. If you just wanted to check your e-mail, surf the web, and read books, you might find that 16gb was not limiting at all.
So while I'm sure 16GB is an option mainly to meet a price point, I expect that many casual users will be able to get by with that and never feel inconvenienced, and I expect many more sophisticated users will be able to juggle their files enough to make it work. Me, I always fill devices to capacity, so I'm always going to get the highest capacity I can afford.