Here's why you should:
It's only $50 (or less, if you shop around) more for the extra space. If you plan on using this as frequently as I do, it's a worthwhile investment. The thing is, you never know how you're going to use your device--you might use it in ways you didn't think you would. As an early adopter, I only had the 16GB option; I use my N7 daily on my commute, and decided to replace my iPod. With a sizable music library, I had to go through the tedious process of removing songs from albums to save space, deciding what individual songs I wanted, etc.
Why you shouldn't:
If you're smart about what you store, you can definitely survive on 16GB. Actual user storage is something like 13GB, but that's still more than manageable. If you store movies, only store one or two at a time. If you play enormous 2GB games, only have one or two on the device at all times. Truncate your music library. Don't store a lot of pictures. I'm sure you can make it work. If you don't have a lot of video/audio media or play enormous games, 16GB is perfect.