Depends on your use case. I use Dropbox for storing photos, since my network connection is generally good enough for it to be fast and seamless (I guess they send resized photos). I do keep music on my phone, but I don't need my > 500 album collection, just some new stuff that I change every couple of weeks.
Among computer illiterates in my family it also doesn't seem to be a problem. My mother has been using 16GB iPads and iPod Touches for years and never ran out of storage.
Sure, if you play lot's of > 1GB games (which seems to be typical these days), you don't want a 16GB model.