To state the obvious, if people didn't think that 16 GB was enough storage, they'd buy more of the models with more storage.
Surprisingly large percentages of smartphone buyers only install a few apps and no media. They apparently talk on the thing!
Look, if people want what you don't, that doesn't mean that they're all deceived and "fleeced", it means that most people care about things you don't care about. I had an engineer who reacted to the iPod Nano launch with the verdict that it was "stupid" and that nobody would buy one because the price/storage ratio was terrible, and it couldn't store all your music, after which the Nano rapidly became the best selling MP3 player of all time (at the time). Because what people cared about wasn't storage, or cost per GB, it was convenient access to some music, and a nice looking, durable, easy to use device.