I understand the perspective, and yeah 16 GB is really low by todays standards. However Apple is also rolling out massive cloud storage initiative with the new phone and OSX touting the ability to basically store all your information there. Cross that with music services like Pandora and iTunes Radio, how much does the average person have to store on their phone?
Looking at my own phone it is 10 GB of music, which accounts for 2/3 of my used storage. Roughly 4.5 GB of my phone comprises OS, apps, and photos. So to me personally I think there is a market there for those who want to save $100 on an iPhone.