Its 16GB to store your save games, gamer profile, etc.
In other words they're giving you more than plenty of space for the content intended to go on this partition.
The remaining space on your drive can be seen by your PC and can be loaded up with movies, music, etc, and will be accessible by the 360 as well. So I really fail to see anything negative about this news.
If anything this is a huge boost to 360 arcade owners who go from 512 mb of storage to 16gb. Or original premium owners who get boosted from 20gb to 36gb of storage.
I for one am quite excited by the fact that I can boost my 20gb to 36gb for a reasonable price.