And that sounds exactly like the case for the 16GB plastic phone. The base 5S already is going to be the big upsell, better make it worth it.
I think too many other flagship phones coming with 32gb standard (HTC one, lumia 1020 etc) will make them bump the capacities. Not only due to competitors, but also another reason for people to upgrade from the cheap (16gb assumed) iPhone Plastic.
I don't think that a 12mp camera with slow mo video will make owning a 16gb device pleasurable.
I think they will drop the 16gb iPad w/ retina screen too.
Like I said, I hope you guys are right. I'd much rather have 32GB on my base device. I thought it was a rip off to pay $100 to go from 16GB to 32GB; but I've wanted to do it anyway (I didn't in the end).
However, if I was betting money on this, my money would be on 16GB still being the $199 model.