Yeah, I’d imagine (though have no actual knowledge) that we’ll see a 128GB iPhone in the next iteration. Maybe that means the end of the 16GB model, or maybe it means that’s reserved for the more affordable version.
The one thing working in the other direction is the movement of all entertainment to the cloud. That is, Spotify, Beats, Rdio, iTunes in the Cloud, etc, allow you to keep a lot less music stored on your device these days (though some is saved for offline capabilities, of course).
Still, while that has alleviated some of the need for a lot of storage, apps continue to grow in size — particularly games. Many are over 1GB now. 16GB seems untenable. And 128GB seems inevitable. (And that should drive the price down of the 64GB models, etc.)
Update: As, of course, as my buddy Cap notes, photos and videos are driving this need for more storage perhaps above all else.