That is certainly not much at all in this day and age, especially when you consider the amount of data required in modern day games (Blu-ray sized here). It will still take some time before the 16GB PS3 is released though, and do not expect it to be announced at the Gamescom event which is happening next month since Sony’s current model inventory is still way too high in terms of stock count to flood the market with yet another piece of hardware.
Still, this rumored model will most probably be a direct competitor to the 4GB Xbox 360 from Microsoft. I guess there really is a market for consoles on the low end spec after all.