I don't have problems with downscaling, especially since Google is offering unlimited storage for free. As you said, most smartphones take photos that are 16MP or less and video 1080p or less.
What I don't like is further compressing images and video regardless of resolution.
Granted, Google is offering an option to store original at $24/year for 100GB and $120/year for 1TB (in contrast to Apple's $12/year for 20GB, $48/year for 200GB, $120/year for 500GB, and $240/year for 1TB).
But I can't help but feel that many would prefer more limited resolution (e.g., 12MP and 720p) in exchange for storing images and video without any compression. Better yet, compress the images and video using the same algorithm on Android M to prevent generation loss.