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Back when I had my 8GB iPhone, if it was filled with music, it would run slower and more sluggish. With the added RAM, I don't think it would have any effect on the speed of the OS.
 
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It's an iPhone 4, so I doubt it.
 
With my 3G I had this problem, which caused me to leave ~1gig open. I'm not so sure with the iPhone 4. If you're worried you might exceed the 16, just get the 32 that way you'll have no regrets :D
 
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