I'm at the other end of the spectrum from you.
I wouldn't pay for a 16GB one. I'm using my 8GB Nexus7 as primarily an eBook reader plus have a bunch of MP3s loaded onto it for background music while I'm reading. (well, and also for the general sweetness of other Google/Android apps.)
The way I see it, I'm only really going to be using the network capabilities of my Nexus7 in places where I have Wifi (home, office, possibly friend's places) so I don't see a real need for a large storage capacity. It's not like I'm going to be using it while driving to/from work or going out bar-hopping in the evenings. And I don't think I would ever really want to load more than 1 movie onto it at a time [ie. for a plane trip or something].
For me, 8GB should be more than enough.
For others, 16GB might still not quite satisfy.
Personally, paying 25% more for the product isn't worth extra storage space that I would never use. I think Google did a good job at offering these 2 options to try and satisfy us both. Although I DO agree that an SD slot would have actually been the ideal solution.