Years of being on IOS, and I was finally curious enough to see what my disk usage is on my 64GB iPad, and even with some games, I'm only using 9GB. So I'm thinking of downsizing to a 16GB model
Be careful there.
I have a 16GB iPad and I've never synced my iPad with a computer. Instead, my approach is to only selectively transfer the media I need and play it back in an app called GoodPlayer. (This is why iTunes' sync is useless to me, as selective syncing requires a lot of extra effort whereas GoodPlayer can use iTunes File Sharing and supports drag and drop transfer. It's also a little similar to your idea of using only Dropbox.)
Currently, I'm at around 400MB of media on my iPad with about 20 installed apps, none of them games. I'm down to a little less than 2GB of available storage. That's not much. In fact, I'm looking to buy a 128GB iPad soon just to have ample room for everything so I don't have to be cautious when transferring media or downloading apps. (And I'd love to play some games as well without the App Store telling me I don't have enough space left to install any.)
Remember that you won't truly be getting 16GB of storage. Some of that is reserved for iOS, some of that is lost due to formatting, and some of that wants to be available so iOS doesn't run out of space if it's writing to memory. In my experience, this gives me around 10GB of actual storage space that I can use. If I tried to install an app or game that is a little over 500MB in size, e.g. GarageBand at 588MB, the App Store would refuse to install it even though I have a supposed 1.8GB storage available.
You can see the picture attached to get a better understanding of what I have on my iPad currently. I've always recommended people to buy a 32GB at least if they have any kind of media they want to store on the iPad, and a 16GB iPad strictly for "only Web surfing" uses. This is in contrast to my 16GB iPhone which I am very happy with, has about the same amount of media, but twice the amount of apps and 15 games. I still have about 3GB available on my iPhone. Apps on the iPad take more space than you might believe at first, due to the larger screen size (I suspect).
That said you should also understand that the Dropbox app, while allowing you to select only the files you want to take up space on your iPad, has no media player of its own, no support for playlists, no repeat or shuffle options, etc. For example, you can only listen to one song at a time, and it'll use a QuickTime frame inside the app to play the song. Once finished, the QuickTime component closes. It doesn't let you playback a full album without you manually selecting each song after one another. Doesn't sound good to me. And of course it won't play other formats than supported by iTunes on your Mac, but this may not be a problem for you if you are indeed transferring your iTunes library to the cloud.
If you believe 16GB is "enough", you could be right. I'd just like to add that you can never know what comes next, e.g. maybe iOS 7 requires more space or handles space differently than previous versions of iOS. In addition if you only have little space available, as I do, over-the-air updates are out of question. Would you still like a 16GB iPad or rather have a bit of extra that could come in handy? You can't upgrade the storage after the fact, just keep that in mind.