so that they can announce a 32Gb iPhone in another few months.
seriously, it's not like they want to keep the storage down, it's probably a cost/benefit calculation.
16 gig iPhone, that's about as much as the first iPod I purchased (20 gig), and I have yet to fill it up.
I don't like having all my songs on one little device, because if there's too much on it, I can't find the stuff I want to listen to