Drop the 16GB, add the 128GB, keep the pricing structure as is with new storage capacities. One of the disappointments of the arrival of 64GB iPhones with the 4S was seeing the 16GB model stick around at the $199 price point.
Here's your chance to rectify it Apple and keep some really competitive price structures (especially since the prospect of launching an iPhone 5S with what is becoming an increasingly bland OS would be a little more exciting and enticing to consumers if storage doubled for the same price).
iPad
32GB - $499
64GB - $599
128GB - $699
iPhone 5 (what it should have been in my opinion)
32GB - $199
64GB - $299
Future iPhone (5S or 6, whatever it may be)
32GB - $199
64GB - $299
128GB - $399
Let's face it, 4G, higher resolution screens, more powerful games, larger media, and increased focus on higher quality... well, everything... with these newer, faster, more powerful phones, means the storage options Apple offers need to change their pricing structures. This is the next logical step in pricing, at least to me, and if it doesn't happen next generation (with the iPhones and iPads), it's purely Apple being greedy.
And don't get me started on how ridiculous it is that storage, and nothing else, drives the price of the item up in 100 dollar increments. Knowing how little the cost of flash storage actually makes in comparison to the rest of the devices components, it's almost criminal to see them justify price increases in 100 dollar increments.